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The effects of takeover threats of shareholders and firm value

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  • Haan, Marco
  • Riyanto, Yohanes

    (Groningen University)

Abstract

We study the role of takeover threats as a corporate control mechanism using Aghion and Tirole's (1997) model of formal and real authority. Shareholders do not monitor the manager's actions, since ownership is widely dispersed. A corporate raider may monitor, and steps in if a profit opportunity exists. In our model, a takeover threat decreases the manager's effort and does not benefit shareholders. The effect of a takeover threat on the expected value of the firm is ambiguous. It is in the interest of the corporate raider if severance payments the manager receives upon being fired are high. Shareholders, however, prefer them to be low.

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File URL: http://irs.ub.rug.nl/ppn/241132576
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Bibliographic Info

Paper provided by University of Groningen, CCSO Centre for Economic Research in its series CCSO Working Papers with number 199912.

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Date of creation: 1999
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Handle: RePEc:dgr:rugccs:199912

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  1. Linn, Scott C. & McConnell, John J., 1983. "An empirical investigation of the impact of `antitakeover' amendments on common stock prices," Journal of Financial Economics, Elsevier, Elsevier, vol. 11(1-4), pages 361-399, April.
  2. Ellie G. Harris, 1990. "Antitakeover Measures, Golden Parachutes, and Target Firm Shareholder Welfare," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 614-625, Winter.
  3. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  4. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
  5. Clifford G. Holderness & Randall S. Kroszner & Dennis P. Sheehan, 1999. "Were the Good Old Days That Good? Changes in Managerial Stock Ownership Since the Great Depression," Journal of Finance, American Finance Association, American Finance Association, vol. 54(2), pages 435-469, 04.
  6. Andrei Shleifer & Lawrence H. Summers, 1987. "Breach of Trust in Hostile Takeovers," NBER Working Papers 2342, National Bureau of Economic Research, Inc.
  7. Holderness, Clifford G. & Sheehan, Dennis P., 1988. "The role of majority shareholders in publicly held corporations : An exploratory analysis," Journal of Financial Economics, Elsevier, Elsevier, vol. 20(1-2), pages 317-346, January.
  8. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
  9. Aghion, Philippe & Tirole, Jean, 1994. "Formal and Real Authority in Organizations," IDEI Working Papers 37, Institut d'Économie Industrielle (IDEI), Toulouse.
  10. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, American Finance Association, vol. 52(2), pages 737-83, June.
  11. Burkart, Mike & Gromb, Denis & Panunzi, Fausto, 1997. "Large Shareholders, Monitoring, and the Value of the Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(3), pages 693-728, August.
  12. Brickley, James A. & Lease, Ronald C. & Smith, Clifford Jr., 1988. "Ownership structure and voting on antitakeover amendments," Journal of Financial Economics, Elsevier, Elsevier, vol. 20(1-2), pages 267-291, January.
  13. Martin, Kenneth J & McConnell, John J, 1991. " Corporate Performance, Corporate Takeovers, and Management Turnover," Journal of Finance, American Finance Association, American Finance Association, vol. 46(2), pages 671-87, June.
  14. Marco Pagano & Ailsa Röell, 1998. "The Choice Of Stock Ownership Structure: Agency Costs, Monitoring, And The Decision To Go Public," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(1), pages 187-225, February.
  15. Ryngaert, Michael, 1988. "The effect of poison pill securities on shareholder wealth," Journal of Financial Economics, Elsevier, Elsevier, vol. 20(1-2), pages 377-417, January.
  16. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 73, pages 110.
  17. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 73, pages 351.
  18. Robert Comment & G. William Schwert, 1993. "Poison or Placebo? Evidence on the Deterrent and Wealth Effects of Modern Antitakeover Measures," NBER Working Papers 4316, National Bureau of Economic Research, Inc.
  19. Agrawal, Anup & Mandelker, Gershon N., 1990. "Large Shareholders and the Monitoring of Managers: The Case of Antitakeover Charter Amendments," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(02), pages 143-161, June.
  20. Ralph A. Walkling & Michael S. Long, 1984. "Agency Theory, Managerial Welfare, and Takeover Bid Resistance," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 54-68, Spring.
  21. Kahn, Charles & Huberman, Gur, 1988. "Two-sided Uncertainty and "Up-or-Out" Contracts," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 6(4), pages 423-44, October.
  22. Steven Huddart, 1993. "The Effect of a Large Shareholder on Corporate Value," Management Science, INFORMS, INFORMS, vol. 39(11), pages 1407-1421, November.
  23. Scharfstein, David, 1988. "The Disciplinary Role of Takeovers," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 55(2), pages 185-99, April.
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Cited by:
  1. Toolsema, Linda A., 2003. "Having more potential raiders weakens the takeover threat," Research Report 03F16, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  2. Toolsema, Linda A., 2007. "Having more potential raiders weakens the takeover threat," Journal of Economic Behavior & Organization, Elsevier, vol. 62(4), pages 670-685, April.

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