The primary purpose of the study was to investigate whether takeover markets are allocationally efficient using Tobin's q as the variable which summarizes the investment opportunities of firms. Chapter I presented the purposes, hypotheses, methodology, and limitations of the study. The two hypotheses proposed were as follows: Acquiring firms' q should be significantly higher than that of control firms, on average, and target firms' q should be significantly lower than that of control firms, on average. Chapter II presented the review of literature on takeovers and theory of investments. Chapter III presented the research design adopted to test the above hypotheses. The methodology to calculate q-values and methods to reduce the bias which may result from choice-based sampling were also given. A paired comparison t-test was employed to test the hypotheses. Sample firms were selected from the COMPUSTAT RESEARCH and COMPUSTAT INDUSTRIAL tape.

This study provides information about convertible preferreds generally and, in particular, those used in financing mergers during the period 1968-1984. Specifically, the following topics are examined: (1) traditional corporate motives for the use of convertible preferreds as a financing means in mergers and acquisitions, (2) annual data about convertible preferreds' issuance by volume and purpose for the period 1968-1984, (3) average annual returns of merger-related convertible preferreds and average annual returns of common stock of the same companies for the period 1968-1980, (4) performance of convertible preferreds in relation to the market in general, and (5) the future of convertible preferreds as a financing instrument in merger activity.