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Managerial Discretion and Takeover Performance

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  • A Cosh
  • P Guest
  • A Hughes

Abstract

We investigate the relation between long run takeover performance and board share ownership in the acquiring company for a sample of 142 UK takeovers completed between 1985-95. We find evidence of a non-linear relationship both between board ownership and takeover profitability, and between board ownership and post-takeover share returns. We cast the analysis in a simultaneous equations framework using non- linear two-stage least squares, and find that our results are robust to this alternative specification. The results are therefore consistent with a managerial alignment / entrenchment trade-off.

Suggested Citation

  • A Cosh & P Guest & A Hughes, 2001. "Managerial Discretion and Takeover Performance," Working Papers wp216, Centre for Business Research, University of Cambridge.
    • Handle: RePEc:cbr:cbrwps:wp216
    Note: PRO-1
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    File URL: https://www.jbs.cam.ac.uk/cbrwp216/
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    References listed on IDEAS

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    1. Michael Firth, 1980. "Takeovers, Shareholder Returns, and the Theory of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(2), pages 235-260.
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    3. Cosh, A D & Hughes, A, 1987. "The Anatomy of Corporate Control: Directors, Shareholders and Executive Remuneration in Giant U.S. and U.K. Corporations," Cambridge Journal of Economics, Oxford University Press, vol. 11(4), pages 285-313, December.
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    5. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
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    7. Cosh, A. D. & Hughes, A. & Lee, K. & Singh, A., 1989. "Institutional investment, mergers and the market for corporate control," International Journal of Industrial Organization, Elsevier, vol. 7(1), pages 73-100, March.
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    10. Chen, Carl R & Steiner, Thomas L, 1999. "Managerial Ownership and Agency Conflicts: A Nonlinear Simultaneous Equation Analysis of Managerial Ownership, Risk Taking, Debt Policy, and Dividend Policy," The Financial Review, Eastern Finance Association, vol. 34(1), pages 119-136, February.
    11. Begg,Iain & Henry,Brian, 1998. "Applied Economics and Public Policy," Cambridge Books, Cambridge University Press, number 9780521624145.
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    Cited by:

    1. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu, 2001. "Corporate Governance, Capital MarketDiscipline and the Returns on Investment," CIG Working Papers FS IV 01-25, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    2. Gugler, Klaus & Mueller, Dennis C. & Yurtoglu, B. Burcin, 2008. "Insider ownership, ownership concentration and investment performance: An international comparison," Journal of Corporate Finance, Elsevier, vol. 14(5), pages 688-705, December.
    3. Hubert Ooghe & Elisabeth Laere & Tine Langhe, 2006. "Are Acquisitions Worthwhile? An Empirical Study of the Post-Acquisition Performance of Privately Held Belgian Companies," Small Business Economics, Springer, vol. 27(2), pages 223-243, October.

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    More about this item

    Keywords

    Corporate takeovers; board ownership; profitability; long run share returns;
    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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