This study examines whether multivariate models using published financial data have predictive accuracy to successfully identify targets, thereby earning excess stock market returns. Although it was found that in the estimation period the important factors affecting the likelihood of a bid were stockholder profitability combined with poor sales growth, these variables were unable to successfully identify targets in the holdout sample. The empirical study also investigated whether the predictions are affected by the choice of statistical estimating technique and data form. It found that they were and that the choice depended upon the statistical assumptions of the models. The results also showed that raw financial ratios and IRRs based on the same underlying data generated significantly different forecasts using the same statistical technique.
|Number of pages||16|
|Journal||International Review of Financial Analysis|
|Publication status||Published - Jun 2000|
- Discriminant analysis