The firm size hypothesis – takeover likelihood (TALI) decreases with target firm size (SIZE) – has enjoyed little traction in the TALI modelling literature; hence, this paper aims to redevelop this hypothesis while taking account of prevailing market conditions – capital liquidity and market performance.,The study uses a logit modelling framework to model TALI. Model performance is assessed using receiver operating characteristic (ROC) curve analysis. The empirical analysis is based on a UK sample of 34,661 firm-year observations drawn from 3,105 firms and 1,396 M&A deals over a 30-year period (1987-2016).,While acquirers generally seek smaller targets because of transaction cost constraints, the paper shows that the documented negative relation between SIZE and TALI arises from sampling bias. Over a full sample, mid-sized firms are most at risk of takeovers. Additionally, market conditions moderate the SIZE–TALI relationship, with acquirers more inclined to pursue comparatively larger targets when financing costs are low and market growth or sentiment is high. The results are generally robust to endogeneity.,Sample truncation on the basis of SIZE leads to empirical misspecification of the TALI–SIZE relation. In an unbiased sample, an inverse U-shaped specification between TALI and SIZE sufficiently models the underlying relation and leads to improvements in the predictive ability of TALI models.,This study advances a new firm size hypothesis which is consistent with classic M&A theories. The study also evidences market conditions as a moderator of the acquirer’s choice of target SIZE. A new model specification which recognises the non-linear relation between TALI and SIZE and accounts for the moderating effect of market conditions on the SIZE-TALI relationship leads to improvements in the performance of TALI prediction models.

中文翻译：

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公司规模，市场状况和收购可能性

公司规模假设-收购可能性（TALI）随着目标公司规模（SIZE）的降低而减少-在TALI建模文献中几乎没有受到关注。因此，本文旨在在考虑当前市场条件（资本流动性和市场绩效）的前提下重新建立这一假设。本研究使用logit建模框架对TALI进行建模。使用接收器工作特性（ROC）曲线分析评估模型性能。实证分析基于英国在30年内（1987年至2016年）从3,105家公司和1,396笔并购交易中获得的34,661家公司年观察样本。尽管由于交易成本的限制，收购方通常寻求较小的目标，但本文结果表明，SIZE和TALI之间的负相关关系是由采样偏差引起的。在完整的样本中 中型企业最容易被收购。此外，市场条件缓和了SIZE-TALI关系，在融资成本低，市场增长或市场情绪高的情况下，收购方更倾向于追求相对较大的目标。结果通常对内生性具有鲁棒性。基于SIZE的样本截断会导致TALI-SIZE关系的经验错误指定。在一个没有偏见的样本中，TALI和SIZE之间的U型倒数规格足以对潜在关系进行建模，并导致TALI模型的预测能力得到改善。本研究提出了一个新的公司规模假设，该假设与经典的M＆A理论是一致的。这项研究还证明了市场条件，可以作为收购方选择目标SIZE的主持人。