Exercise 16-9 Static Consider a sample comprised of firms that were targets of t

Question

Exercise 16-9 Static

Consider a sample comprised of firms that were targets of tender offers during the period 1978–1985. Conduct an analysis where the response variable represents the number of bids (Bids) received prior to the takeover of the firm. The explanatory variables include the bid premium (Premium) and firm size (Size). It is generally believed that a high initial bid premium, defined as the percentage excess of the firm's stock price, would deter subsequent bids. Moreover, while tender offers for large firms are likely to receive more media coverage and thereby attract the attention of opportunistic bidders, it also is a wealth constraint to potential bidders. The data are shown in the accompanying table.

  

Bids

Premium

Size
(in $ billions)

Bids

Premium

Size
(in $ billions)

3

1.1905

0.7668

2

1.3132

0.5241

1

1.0360

0.1625

7

1.2941

0.4077

2

1.4034

0.1205

3

1.3629

0.1630

2

1.5045

0.0723

3

1.2107

0.2297

2

1.3807

0.1891

2

1.4341

2.8329

4

1.4001

0.1542

3

1.4213

0.1333

3

1.1817

0.4604

2

1.5087

0.1904

2

1.3226

0.2768

2

1.3341

0.0184

2

1.6506

0.2289

6

1.1603

2.1932

1

1.3561

0.9140

4

1.2755

0.2664

2

1.3058

0.2308

7

1.1437

0.0909

3

1.4723

0.1073

2

1.1270

2.4135

3

1.3870

0.0370

3

1.2012

0.1630

2

2.0664

0.3081

2

1.4040

0.0894

3

1.3336

0.4237

2

1.3932

0.5346

2

1.6146

0.1139

3

1.2985

0.1230

4

1.3494

0.1801

4

1.2945

9.9245

3

1.3222

0.5516

2

1.2617

0.1888

3

1.4022

0.2236

2

1.0586

0.5253

2

1.5364

0.0810

3

1.2131

20.964

4

1.5105

0.1355

2

1.2082

0.0698

2

1.5306

0.1119

2

1.6332

22.169

3

1.3195

0.7498

4

1.1741

0.0860

5

0.9535

1.2994

4

1.2813

0.6891

2

1.5732

0.0525

3

1.1309

0.2155

2

1.4456

0.0353

2

1.2064

0.3128

2

1.4194

0.1194

3

0.9427

0.9494

2

1.4389

0.1046

2

1.3971

0.1288

5

1.3353

0.2076

2

1.4932

0.0634

2

1.2090

0.2216

2

1.3207

1.5622

3

1.2171

0.0307

2

1.1540

0.0177

2

1.6733

0.4245

1

1.3918

0.2212

5

1.5880

0.0767

2

1.3145

2.8801

2

1.3654

2.9660

1

1.5846

0.3397

2

1.6797

1.7649

2

1.3849

0.0221

11

1.3032

11.0363

2

1.0385

0.8800

2

1.3944

0.0241

2

1.2279

0.0909

2

1.4286

2.0104

2

1.4913

0.4026

2

1.3896

0.0611

3

1.0983

6.3883

2

1.3966

0.1071

2

1.2088

0.4904

2

1.7451

0.2930

2

1.3010

0.2291

3

1.7553

0.1202

3

1.1131

0.0796

2

1.2465

0.2157

3

1.1986

0.8841

3

1.4918

0.9539

2

1.4167

4.0007

2

1.8904

0.3208

2

1.4344

0.0846

3

1.4309

5.0431

2

1.3165

1.4168

2

1.3044

0.0502

1

1.2190

0.5165

2

1.2779

0.0835

1

1.2332

2.5328

2

1.3733

0.4404

3

1.2490

1.4534

4

1.3424

0.6808

2

1.2377

0.2889

2

1.3199

0.6081

2

1.2026

0.9394

3

1.9045

0.0679

2

1.0331

0.3533

5

1.3742

6.0485

2

1.1880

0.0389

2

1.7543

0.2295

3

1.1766

0.1505

4

1.3519

0.0764

8

1.1306

2.3114

2

1.4588

1.1209

3

1.2236

0.3755

2

1.3055

0.1044

5

1.0838

1.1593

4

1.6021

3.2185

3

1.2416

0.2715

3

1.0456

0.0566

5

1.4454

0.9353

3

1.4197

0.0471

4

1.2821

0.5257

1

1.3560

0.0496

3

1.4366

0.1743

4

1.2964

0.1210

1

1.2720

0.6429

1

1.4027

3.7112

2

1.0329

3.4751

Estimate the model, Bids = 0 + 1Premium + 2Size + 2Size2 + . (Negative values should be indicated by a minus sign. Round your answers to 4 decimal places.)

Find the predicted number of bids for a firm that has a bid premium of 1.2 and firm size of $4, 8, 12, and 16 billion, respectively. (Round your answers to 2 decimal places.)

What firm size is likely to get the highest number of bids? (Round your answer to 2 decimal places.)

(Round all intermediate calculations to at least 4 decimal places.)

Explanation / Answer

a)

Bids=3.813-1.008*Premium+0.375*Size-0.016*Size^2

b)

c-1)

c-2)

Firm size likely to get highest number of bids: $16 billion

SUMMARY OUTPUT Regression Statistics Multiple R 0.343 R Square 0.118 Adjusted R Square 0.096 Standard Error 1.362 Observations 126 ANOVA df SS MS F Significance F Regression 3 30.146 10.049 5.419 0.002 Residual 122 226.211 1.854 Total 125 256.357 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Intercept 3.813 0.897 4.250 0.000 2.037 5.589 Premium -1.008 0.650 -1.550 0.124 -2.295 0.279 Size 0.375 0.113 3.323 0.001 0.151 0.598 Size^2 -0.016 0.006 -2.718 0.008 -0.027 -0.004

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