Bustup takeovers of value-destroying diversified firms

Article Abstract:

We examine whether the value loss from diversification affects takeover and breakup probabilities. We estimate diversification's value effect by imputing stand-alone values for individual business segments and find that firms with greater value losses are more likely to be taken over. Moreover, those acquired firms whose losses are greatest are most likely to be bought by LBO associations, which frequently break up their targets. For a subsample of large diversified targets: (1) higher value losses increase the extent of post-takeover bustup; and (2) post-takeover bustup generally results in divested divisions being operated as part of a focused, stand-alone firm. (Reprinted by permission of the publisher.)

Acquisitions and mergers, Diversification in industry, Industrial diversification, Value (Economics)

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Ex ante bond returns and the liquidity preference hypothesis

Article Abstract:

We provide a formal test of the liquidity preference hypothesis (LPH), that is, the monotonicity of ex ante term premiums, using nonparametric estimates that do not require a structural model for conditional expected returns. Although the point estimates of the term premiums are consistent with previous conclusions in the literature regarding violations of the LPH, the test statistics are generally insignificant, even when powerful conditioning information is used. These results illustrate the importance of correctly accounting for correlations across maturities and of formally testing the inequality restrictions implied by the LPH. (Reprinted by permission of the publisher.)

Prices and rates, Bonds, Bonds (Securities), Liquidity (Finance), Return on investment, Rate of return

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