DO TAKEOVER TARGETS OVERINVEST

I examine the capital expenditures of a sample of 700 takeover targets and firms that went private over the period 1972-1987. For the comple te sample, I do not find evidence that takeover targets increase their capital expenditures over the four-year period before the acquisition or that they overinvest in capital expenditures relative to several b enchmarks. Subsample results provide some evidence of overinvestment i n oil and gas firms and large firms. There is no evidence of overinves tment, however, for firms acquired in a hostile takeover or firms that went private. In general, these results are not consistent with the c onjecture that takeovers are motivated by the need to reduce excess in vestment in capital expenditures in target firms.