Toeholds and takeover probability: implications for investment strategies

PurposeThe purpose of this paper is to propose various toehold indicators and analyse whether the models incorporating these indicators can be used to establish investment strategies.Design/methodology/approachLogistic regression is used to test toehold indicator significance.FindingsThe results reflect that the designed measures are positively correlated to the likelihood of launching a takeover, although the power of the models to predict out‐sample takeovers is moderate, between 60.71 percent and 71.59 percent. The indicators allow us to design strategies which offer positive abnormal returns. In particular, abnormal return over the Fama‐French factors is 0.5 percent.Originality/valueToe…