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Corporate takeovers, bargaining and managers' incentives to invest

  • Marcel Canoy

    (Netherlands Central Planning Bureau, Van Stolkweg 14, The Hague, Netherlands)

  • Yohanes E. Riyanto

    (Center for Economic Studies, Katholieke Universiteit Leuven, Belgium)

  • Patrick Van Cayseele

    (Center for Economic Studies, Katholieke Universiteit Leuven, Belgium)

This paper analyzes the impact of potential takeovers on the investment decisions of managers. The takeover involves bargaining over the potential surplus between the acquiring firm, the target manager, and shareholders of the target firm. The anticipation of future takeover gains will influence the decision-makers to invest ex ante. Interestingly, both over and underinvestment might prevail, depending on the relative bargaining powers of the parties. The model encompasses specific cases documented in the empirical literature and mergers and acquisitions (M&A) practice. It is, therefore, particularly suited to focus on the desirability of anti-takeover legislation. Copyright © 2000 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 21 (2000)
Issue (Month): 1 ()
Pages: 1-18

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Handle: RePEc:wly:mgtdec:v:21:y:2000:i:1:p:1-18
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. Philippe Aghion & Jean Tirole, 1994. "Formal and Real Authority in Organizations," Working papers 95-8, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Schnitzer, Monika, 1995. ""Breach of Trust" in Takeovers and the Optimal Corporate Charter," Journal of Industrial Economics, Wiley Blackwell, vol. 43(3), pages 229-59, September.
  3. Shleifer, Andrei & Vishny, Robert W., 1989. "Management entrenchment : The case of manager-specific investments," Journal of Financial Economics, Elsevier, vol. 25(1), pages 123-139, November.
  4. Narayanan, M P, 1985. " Managerial Incentives for Short-term Results," Journal of Finance, American Finance Association, vol. 40(5), pages 1469-84, December.
  5. Lichtenberg, Frank R. & Siegel, Donald, 1990. "The effects of leveraged buyouts on productivity and related aspects of firm behavior," Journal of Financial Economics, Elsevier, vol. 27(1), pages 165-194, September.
  6. Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254.
  7. Mitchell Berlin, 1998. "That thing venture capitalist do," Business Review, Federal Reserve Bank of Philadelphia, issue Jan, pages 15-26.
  8. Meulbroek, Lisa K, et al, 1990. "Shark Repellents and Managerial Myopia: An Empirical Test," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1108-17, October.
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