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Do managers make takeover financing decisions that circumvent more effective outside blockholders?

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  • Harris, Oneil
  • Madura, Jeff
  • Glegg, Charmaine
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    Abstract

    Consistent with agency theory, we find that bidder managers make takeover financing decisions in ways that circumvent more effective monitors. Bidder managers are more likely to use cash rather than stock when targets have aggressive outside blockholders. We also find that the likelihood of a cash offer decreases when aggressive outside bidder block ownership is relatively low. However, the likelihood of a cash offer increases when aggressive outside bidder blockholding is in the intermediate range, a range of ownership where their continued influence over managerial decisions is threatened by a stock offer. Furthermore, we find that bidder management tends to use cash when its outside bidder blockholders are less aggressive. Overall, our findings indicate that managerial decisions on financing takeovers are motivated to prevent aggressive outside blockholders from gaining more control.

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    Bibliographic Info

    Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

    Volume (Year): 50 (2010)
    Issue (Month): 2 (May)
    Pages: 180-190

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    Handle: RePEc:eee:quaeco:v:50:y:2010:i:2:p:180-190

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    Web page: http://www.elsevier.com/locate/inca/620167

    Related research

    Keywords: Takeover payment method Agency conflict Monitoring Blockholders;

    References

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