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The role of hostile takeovers in corporate governance

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Author Info
Rajeeva Sinha
Abstract

The study makes a distinction between the role of hostile takeovers as a mechanism for downsizing and exit in the process of 'creative destruction' and the role of hostile takeovers as a corporate governance mechanism for curbing managerial slack and opportunism. The likelihood that underperforming firms with ineffective internal governance structures are the targets of hostile takeover bids is examined using a panel data for a matched sample of firms in the UK. The study does not find underperformance in firms as a significant factor in the likelihood of a hostile takeover bid. The findings of the literature reporting a significant influence of underperformance in hostile takeovers appear to be the outcome of a mis-specified model. The study also compares the relationship between governance structure and performance for firms subject to a hostile takeover bid with firms that did not receive a tender offer. The empirical findings do not show that firms with relatively ineffective internal governance structure are the likely targets for hostile takeover bids.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Financial Economics.

Volume (Year): 14 (2004)
Issue (Month): 18 (December)
Pages: 1291-1305
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Handle: RePEc:taf:apfiec:v:14:y:2004:i:18:p:1291-1305

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  1. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law & Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  2. Alan J. Auerbach, 1988. "Corporate Takeovers: Causes and Consequences," NBER Books, National Bureau of Economic Research, Inc, number auer88-1.
  3. Mitchell, Mark L. & Mulherin, J. Harold, 1996. "The impact of industry shocks on takeover and restructuring activity," Journal of Financial Economics, Elsevier, vol. 41(2), pages 193-229, June. [Downloadable!] (restricted)
  4. Andrei Shleifer & Robert W. Vishny, 1995. "A Survey of Corporate Governance," Harvard Institute of Economic Research Working Papers 1741, Harvard - Institute of Economic Research.
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  5. Morck, Randall & Shleifer, Andrei & Vishny, Robert W, 1989. "Alternative Mechanisms for Corporate Control," American Economic Review, American Economic Association, vol. 79(4), pages 842-52, September. [Downloadable!] (restricted)
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  6. Mayer, C., 1993. "Ownership: An Inaugural Lecture," The Warwick Economics Research Paper Series (TWERPS) 402, University of Warwick, Department of Economics.
  7. Mitchell, Mark L & Lehn, Kenneth, 1990. "Do Bad Bidders Become Good Targets?," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 372-98, April. [Downloadable!] (restricted)
  8. Lucian Arye Bebchuk & Allen Ferrell, 2000. "Federalism and Takeover Law: The Race to Protect Managers from Takeovers," NBER Working Papers 7232, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June. [Downloadable!] (restricted)
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