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Hostile-vs.-white-knight bidders

Author

Listed:
  • Carolyn Carroll

    (College of Commerce and Business Administration, University of Alabama, AL, USA)

  • John M. Griffith

    (College of Business and Public Administration, Old Dominion University, Norfolk, VA, USA)

  • Patricia M. Rudolph

    (College of Commerce and Business Administration, University of Alabama, AL, USA)

Abstract

We examine the hypothesis that white knights enter control contests to spend free cash flow instead of paying it out to shareholders. Tobin's q is used to measure management's inclination to invest in negative NPV investments. We find that historically, white knights have over-invested and their acquisition of the target is one more negative NPV investment. Alternatively, hostile bidders' past investment decisions have increased shareholder wealth. Furthermore, white knights' returns upon the announcement of their bid have a significant negative relationship with free cash flow, implying that their bid reveals information about white knights management's investment decisions. Copyright © 1999 John Wiley & Sons, Ltd.

Suggested Citation

  • Carolyn Carroll & John M. Griffith & Patricia M. Rudolph, 1999. "Hostile-vs.-white-knight bidders," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(3), pages 163-171.
    • Handle: RePEc:wly:mgtdec:v:20:y:1999:i:3:p:163-171
    DOI: 10.1002/(SICI)1099-1468(199905)20:3<163::AID-MDE923>3.0.CO;2-7
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    References listed on IDEAS

    as
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    6. Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1989. "Managerial performance, Tobin's Q, and the gains from successful tender offers," Journal of Financial Economics, Elsevier, vol. 24(1), pages 137-154, September.
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    Cited by:

    1. Norman Saleh & Kamran Ahmed, 2005. "Earnings management of distressed firms during debt renegotiation," Accounting and Business Research, Taylor & Francis Journals, vol. 35(1), pages 69-86.
    2. Flanagan, David J. & O'Shaughnessy, K. C., 2003. "Core-related acquisitions, multiple bidders and tender offer premiums," Journal of Business Research, Elsevier, vol. 56(8), pages 573-585, August.

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