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Firm size and the effectiveness of the market for corporate control

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  • Offenberg, David
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    Abstract

    Recent research has shown evidence that larger firms are more likely to destroy shareholder wealth through acquisitions. Those findings suggest that managers of larger firms are less likely to be disciplined by the market for corporate control than managers of smaller firms. With a sample of nearly 8000 acquisitions over the period from 1980-1999, this paper offers evidence to the contrary. The results suggest that larger firms are more likely to be the target of a disciplinary takeover than smaller firms. Further tests indicate that CEOs of larger firms are significantly more likely to be replaced following a series of poor acquisitions than CEOs of smaller firms. In total, managers of the largest firms continue to make the worst acquisitions despite the evidence that they are more likely to be punished for doing so.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 15 (2009)
    Issue (Month): 1 (February)
    Pages: 66-79

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    Handle: RePEc:eee:corfin:v:15:y:2009:i:1:p:66-79

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    Web page: http://www.elsevier.com/locate/jcorpfin

    Related research

    Keywords: Mergers and acquisitions Market for corporate control Firm size Agency theory CEO turnover;

    References

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    1. Bradley, Michael & Desai, Anand & Kim, E. Han, 1988. "Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms," Journal of Financial Economics, Elsevier, vol. 21(1), pages 3-40, May.
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    14. Martin, Kenneth J & McConnell, John J, 1991. " Corporate Performance, Corporate Takeovers, and Management Turnover," Journal of Finance, American Finance Association, vol. 46(2), pages 671-87, June.
    15. Kathleen Fuller & Jeffry Netter & Mike Stegemoller, 2002. "What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions," Journal of Finance, American Finance Association, vol. 57(4), pages 1763-1793, 08.
    16. Moeller, Sara B. & Schlingemann, Frederik P. & Stulz, Rene M., 2004. "Firm size and the gains from acquisitions," Journal of Financial Economics, Elsevier, vol. 73(2), pages 201-228, August.
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    18. Palepu, Krishna G., 1986. "Predicting takeover targets : A methodological and empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 8(1), pages 3-35, March.
    19. Ronald W. Masulis & Cong Wang & Fei Xie, 2007. "Corporate Governance and Acquirer Returns," Journal of Finance, American Finance Association, vol. 62(4), pages 1851-1889, 08.
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    Citations

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    Cited by:
    1. Offenberg, David, 2010. "Agency Costs And The Size Discount: Evidence From Acquisitions," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 15(29), pages 73-93.
    2. Netter, Jeffry & Poulsen, Annette & Stegemoller, Mike, 2009. "The rise of corporate governance in corporate control research," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 1-9, February.
    3. Rose, Morgan J., 2009. "Heterogeneous impacts of staggered boards by ownership concentration," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 113-128, February.
    4. Humphery-Jenner, Mark L. & Powell, Ronan G., 2011. "Firm size, takeover profitability, and the effectiveness of the market for corporate control: Does the absence of anti-takeover provisions make a difference?," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 418-437, June.
    5. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2009. "Learning, hubris and corporate serial acquisitions," Journal of Corporate Finance, Elsevier, vol. 15(5), pages 543-561, December.
    6. Robinson, David T., 2009. "Size, ownership and the market for corporate control," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 80-84, February.

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