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The effects of takeover threats on shareholders and firm value

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  • Haan, Marco A.
  • Riyanto, Yohanes

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 prot opportunity exists. In our model, a takeover threat decreases the manager's effort and harms shareholders. The effect of a takeover threat on the expected value of the rm is ambiguous. It is in the interest of the corporate raider if severance payments the manager receives upon being red are high. Shareholders, however, prefer them to be low.
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  • Haan, Marco A. & Riyanto, Yohanes, 2006. "The effects of takeover threats on shareholders and firm value," Journal of Economic Behavior & Organization, Elsevier, vol. 59(1), pages 45-68, January.
    • Handle: RePEc:eee:jeborg:v:59:y:2006:i:1:p:45-68
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    Cited by:

    1. Toolsema, Linda A., 2003. "Having more potential raiders weakens the takeover threat," CCSO Working Papers 200304, University of Groningen, CCSO Centre for Economic Research.
    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.
    3. 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).

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