The Empirical Evidence Strongly Indicates That the Stockholders of the Target

question 64

Essay

The empirical evidence strongly indicates that the stockholders of the target firm realize large wealth gains as a result of a takeover bid but the stockholders in the acquiring firm gain little,if anything. Although there exists no definitive answer as to why this is the case,several possible explanations have been proposed. List and explain three of these possible explanations for the minimal returns to the acquiring firm's stockholders.

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Definitions:

Bankrupt

Describes a legal status of a person or entity that cannot repay the debts it owes to creditors, leading to legal proceedings for debt relief.

Liabilities

Financial obligations or debts that a person or entity legally owes to others.

Stigma

A negative perception or association with a property or individual, often due to psychological factors or past events, which can affect value or reputation.

Installments

Payments divided into multiple, usually regular, parts over a set period of time.