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Have changing takeover defense rules and strategies entrenched management and damaged shareholders? The case of defeated takeover bids

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  • Ryngaert, Michael
  • Scholten, Ralph
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    Abstract

    Using the Delaware Supreme Court's Time-Warner decision of July 1989 as a focal point, we study defeated takeover bids before and after July 1989 to assess the direct effects of stronger takeover impediments on takeover defense tactics used to defeat bids and the resulting shareholder wealth outcomes and managerial turnover. We find that firms that defeated takeover bids after July 1989 shifted away from the use of active takeover defenses (repurchases, special dividends, greenmail, and leverage increases). Nevertheless, shareholders of firms that defeat a takeover experienced slightly better wealth outcomes in the 1990s than in the 1980s. We also find increased managerial turnover rates after defeating a takeover bid post Time-Warner, suggesting that managers that defeat hostile takeover bids did not become more entrenched due to greater takeover impediments relative to prior years.

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    Bibliographic Info

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

    Volume (Year): 16 (2010)
    Issue (Month): 1 (February)
    Pages: 16-37

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    Handle: RePEc:eee:corfin:v:16:y:2010:i:1:p:16-37

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

    Related research

    Keywords: Takeovers Agency costs;

    References

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    1. Richard S. Ruback, 1988. "Do Target Shareholders Lose in Unsuccessful Control Contests?," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 137-156 National Bureau of Economic Research, Inc.
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    7. Ralph Scholten, 2005. "Investment Decisions and Managerial Discipline: Evidence from the Takeover Market," Financial Management, Financial Management Association, vol. 34(2), Summer.
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    Cited by:
    1. Becker-Blease, John R., 2011. "Governance and innovation," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 947-958, September.
    2. Sokolyk, Tatyana, 2011. "The effects of antitakeover provisions on acquisition targets," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 612-627, June.

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