Predicting Takeover Targets: Long-run Evidence from the Netherlands

In the market for corporate control, the ownership and control of firms is traded. Mergers and acquisitions are major events for firms affecting the continuity and performance of firms and industries. This paper studies the determinants of takeovers in the Netherlands over a long period, 1961-2008. We conclude that until the mid-1980s targets had low leverage and high cash holdings. After this period, shareholder wealth maximization became a dominant goal, and we find that smaller and more profitable firms become targets for takeovers. In the most recent period takeover defenses shield firms from takeover, while this effect is not found in the early period until the mid-1980s. We demonstrate shareholder rights have become important in determining takeover probabilities. The results illustrate the efficacy of rules and regulations and how they can affect the market for corporate control in the Netherlands.