Capital Structure and Ownership Distribution of Tender Offer Targets: An Empirical Study

This study investigates the capital and ownership structure of firms receiving tender offers. Predictions of control-driven models developed by Haris and Raviv (1988) and Stulz (1988) and value-maximizing models developed by Israel (1991, 1992) are examined. The study reports results consistent with the predictions that: 1) target firms increase leverage during control contests, 2) leverage increases are higher when the tender offer is opposed, 3) leverage increases are higher when the tender offer is unsuccessful, and 4) ownership structure is important to explaining the success of tender offers. When tested jointly with other independent variables, only capital structure is statistically significant in explaining both management's opposition and the success of a tender offer.