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The takeover market’s effect on managerial ownership: evidence from hostile takeover susceptibility

Author

Listed:
  • Pattanaporn Chatjuthamard
  • Ploypailin Kijkasiwat
  • Pornsit Jiraporn
  • Ali Uyar

Abstract

Purpose - Capitalizing on a unique measure of takeover susceptibility principally based on the staggered implementation of state laws, this study aims to explore the takeover market’s effect on managerial ownership. The market for corporate control, often known as the takeover market, is an important external governance mechanism, whereas managerial ownership is a vital internal governance instrument. Managerial ownership brings into convergence the interests of shareholders and managers. The originality of this study arises from the usage of state-level anti-takeover legislations as a measure which is beyond the control of firms and plausibly exogenous to firm-specific characteristics. Design/methodology/approach - In addition to the standard regression analysis, this study also executes a variety of robustness checks to minimize endogeneity, i.e. propensity score matching, entropy balancing, instrumental–variable analysis,Lewbel’s (2012)heteroscedastic identification and Oster’s (2019) testing for coefficient stability. Findings - Based on a large sample of US firms, the results show that more hostile takeover threats bring about significantly lower managerial ownership. The results reinforce the prediction of the substitution hypothesis. The disciplinary function of the takeover market reduces agency conflict to the point where managerial ownership is less necessary as a governance mechanism. Specifically, a rise in takeover susceptibility by one standard deviation diminishes managerial ownership by 7.22%. Originality/value - `To the best of the authors’ knowledge, this study is the first to shed light on the impact of the takeover market on managerial ownership using a novel measure mainly based on the staggered adoption of state laws, which are plausibly exogenous to individual firms’ characteristics. Consequently, unlike prior research, this study is more likely to indicate a causal effect, rather than merely a correlation.

Suggested Citation

  • Pattanaporn Chatjuthamard & Ploypailin Kijkasiwat & Pornsit Jiraporn & Ali Uyar, 2022. "The takeover market’s effect on managerial ownership: evidence from hostile takeover susceptibility," Management Research Review, Emerald Group Publishing Limited, vol. 46(7), pages 996-1015, November.
    • Handle: RePEc:eme:mrrpps:mrr-03-2022-0164
    DOI: 10.1108/MRR-03-2022-0164
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    Cited by:

    1. Al-Shaer, Habiba & Uyar, Ali & Kuzey, Cemil & Karaman, Abdullah S., 2023. "Do shareholders punish or reward excessive CSR engagement? Moderating effect of cash flow and firm growth," International Review of Financial Analysis, Elsevier, vol. 88(C).

    More about this item

    Keywords

    Hostile takeovers; Takeover vulnerability; Takeover susceptibility; Managerial ownership; Corporate governance; Agency theory; G32; G34;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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