8342937139

MEANS OF PAYMENT AND BIDDING

(dav 0) (AR = -0.3699, i = -2.026) are not significantly different from zero.

The two-day announcement CAR is -0.257 which isalso nor significantly different from zero (i - -0.995). The results are consistent with the prediction of the information hypothesis’ that bidder shareholders in cash offers experience non-negaiive abnormal retumsat the announcement of the offer.

Combination Bidders

For bidders in the combination category, Table 1 indicatesthat the shareholdersexperience negative abnormal returns on the announcement day (AR = -0.8871, t = -4.858) and for the two-day announcement period (CAR = -0.917, t = -3.55) which are significantly different from zero at 1% level. The proportion of shares in eighty percent of the combination offers studied was at least sixty percent. The results are consistent with thenegative effectof the share portion outweighing the positive clTect of the cash portion of the offer.

Compańsm of Returns Jor Bidders in the Cash, Shares and Combination Offers.

To ascertain whether there is any significant difference in the announcement day AR and the two-day announcement CAR between the cash, shares and the combination bidders, thedaily mean differences of abnormal returns were calculated fortheeleven dayssurrounding the announcement.

The results are presented in Tables 2(A), (B) and (C) in the Appendix, and a summary of the differences in the abnormal returns and the cumu-Iative abnormal returns are presented in Table 2.

(A) Cash versus Share offers

The ‘Information Hypothesis* suggests that if the information effects are present and assuming other things being equal, the returns to bidders in cash offers will be positive and in share offers negative, implying that bidders in cash offers earn higher returns than share offers at the announcement of the offer.

Table 1 shows that the returns to bidders in cash offers at the two-day announcement period are negative but not significantly different from zero. The two-day announcement period returns to bidders in the share offers are negative and significantly different from zero at 1 % level. l abie 2 shows that the difference in the two-day announcement period abnormal returns of cash and share bidders is positive and significant at 5% level (CAR(-1, 0) = 0.999, t = 2.01). These findings

FIRMS’ STOCK RETURNS IN THE TK

TABLE2

Summary of the differences in the AR and ( AR on day-1 and dayO for bidders in the cash, shares and combination offers. The t -statistics are in parenthesis.N

Means of payment
Event day	Cash	Cash	Shares
	vs. shares	vs.combination	vs. combination
-1	0.480	0.206	-0.272
	(1.470)	(0.871)	(-1.30)
0	0.519	0.581	0.061
	(1.970)	(2.390)*	(0.240)
CAR (-1,0)	0.999	0.787	-0.211
	(2.01)*	(1.93)	(-0.312)

^Significantly different from /.ero at 5% !evel

suggest that. on average, the returns to bidders in cash offers are higher than those in share offers at the announcement of the offer, consistent with the ‘Information Hypothesis’.

(B) The Combination offer in comparison to Share and Cash offers

Table 2 shows that the difference in the two-day announcement abnormal return for bidders in the ‘cash and combination’ offers is positive and in the ‘share and combination' offers is negative but both differences are not significantly different from zero.

The negative and significant two-day announcement abnormal returns for bidders in the combination category shown in Table 1 implies that most of the combination offers studied had on average a higher proportion of shares in the offer. Eighty percent of the combination offers sampled had morę dian sixty percent of the offer in the form of shares. This implies that for the cash versus combination category, the positive effect of the cash offers outweigh the negative effect of the share offers but the positive difference is not significantly different from zero. For the ‘share versus combination' offers, the negative effect of the share offers outweigh the posime effect of cash offers but the negative difference is not significantly different f rom zero.

The negative and significant two-day announcement abnormal returns for bidders offering shares are consistent with the findings of Dodd (1980), Asquith (1983), Dennis and MacConnel (1986) and Travlos (1987) on bidder returns in share offers in the US. They all found that bidders experience significant negative abnormal returns

97

PERTANIKA VOL. 14 NO.l, 1991