The Determinants of Takeover Risk For Acquiring and Target Companies: Australian Evidence

The characteristics of acquiring and target companies involved in Australian takeovers are explored in this study. Employing fresh methodology developed by Palepu (1986), this study improves on the methodological flaws of past studies. Proxies are developed from takeover theory. These include: synergy, managerial motives and agency theory, market valuation of assets and tax considerations. Their significance is determined using both probit analysis and the independent-samples t-test procedure. The empirical findings suggest that targets are low growth companies, with potentially valuable assets that are not being utilised due to inefficient management. In addition, an inverse relationship between the characteristics of acquiring and target companies has been determined.