Change in Control and Firm Performance

Whether firms that experienced change in control perform better or worse than before the change remains a puzzling issue. In this study we investigate the firms that experienced change in control and find that poor performing firms tend to be the takeover targets; however, these firms performed even worse after change of control. We find that corporate governance dictates the post-change performance measures. The proportion of directors controlled by the controlling shareholder is negatively related to the post-change performance measures. In contrast, the proportion of directors controlled by the second controlling shareholder is positively related to the post-change performance measures. Furthermore, the performance measures of the targets improved when the controlling shareholder entitled high cash flow rights. Finally, the change-in-control firms are more likely to be trapped in financial distress when the controlling shareholders deeply involved in the board.