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Characteristics of Hostile and Friendly Takeover Targets

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  • Randall Morck
  • Andrei Shleifer
  • Robert W. Vishny

Abstract

Compared to an average Fortune 500 firm, a target of a hostile takeover is smaller, older, has a lower Tobin's Q, invests less of its income, and is growing more slowly. The low Q seems to be an industry-specific rather than a firm-specific effect. In addition, a hostile target is less likely to be run by a member of the founding family, and has lower officer ownership, than the average firm. In contrast, a target of a friendly acquisitions is smaller and younger than an average Fortune 500 firm, and has comparable Tobin's Qs and most other financial characteristics. Friendly targets are more likely to be run by a member of the founding family, and have higher officer ownership, than the average firm. The decision of a CEO with a large stake and/or with a relationship to a founder to retire often precipitates a friendly acquisition. These results suggest that the motive for a takeover often determines its mood. Thus disciplinary takeovers are more often hostile, and synergistic ones are more often friendly.

Suggested Citation

  • Randall Morck & Andrei Shleifer & Robert W. Vishny, 1987. "Characteristics of Hostile and Friendly Takeover Targets," NBER Working Papers 2295, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2295
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    References listed on IDEAS

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    1. Charles Brown & James L. Medoff, 1988. "The Impact of Firm Acquisitions on Labor," NBER Chapters,in: Corporate Takeovers: Causes and Consequences, pages 9-32 National Bureau of Economic Research, Inc.
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    5. Shleifer, Andrei & Vishny, Robert W, 1988. "Value Maximization and the Acquisition Process," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 7-20, Winter.
    6. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    7. 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.
    8. Palepu, Krishna G., 1986. "Predicting takeover targets : A methodological and empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 8(1), pages 3-35, March.
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    Cited by:

    1. Morck, Randall & Shleifer, Andrei & Vishny, Robert W, 1989. "Alternative Mechanisms for Corporate Control," American Economic Review, American Economic Association, vol. 79(4), pages 842-852, September.
    2. Don Goldstein, 2000. "Hostile Takeovers as Corporate Governance? Evidence from the 1980s," Review of Political Economy, Taylor & Francis Journals, vol. 12(4), pages 381-402.
    3. Morten Bennedsen & Kasper Nielsen & Francisco Pérez-González & Daniel Wolfenzon, 2005. "Inside the Family Firm: The Role of Families in Succession Decisions and Performance," CIE Discussion Papers 2005-13, University of Copenhagen. Department of Economics. Centre for Industrial Economics, revised Sep 2005.
    4. Bennedsen, Morten & Nielsen, Kasper & Pérez-González, Francisco & Wolfenzon, Daniel, 2005. "Inside the Family Firm," Working Papers 21-2005, Copenhagen Business School, Department of Economics.
    5. Mohd Irfan, 2011. "The role of executives in hostile takeover attempts," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 6(1), pages 29-40, May.
    6. Song, Moon H. & Walkling, Ralph A., 2004. "Anticipation, Acquisitions and the Bidder Return Puzzle," Working Paper Series 2004-15, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    7. Lynn E. Browne & Eric S. Rosengren, 1987. "Are hostile takeovers different?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 31, pages 199-242.
    8. Lynn E. Browne & Eric S. Rosengren, 1988. "The merger boom: proceedings of a conference held October 1987," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 31(Oct).
    9. Charlie Weir & David Laing, 2003. "Ownership structure, board composition and the market for corporate control in the UK: an empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 35(16), pages 1747-1759.
    10. Ana I. Fernández & Silvia Gómez-Ansón, 1999. "Un estudio de las Ofertas Públicas de Adquisición en el mercado de valores español," Investigaciones Economicas, Fundación SEPI, vol. 23(3), pages 471-495, September.
    11. Alberto Chong & Florencio Lopez-de-Silanes, 2007. "Corporate Governance in Latin America," Research Department Publications 4494, Inter-American Development Bank, Research Department.
    12. Alberto Chong & Florencio Lopez-de-Silanes, 2007. "Gobierno Corporativo en América Latina," Research Department Publications 4495, Inter-American Development Bank, Research Department.
    13. Van Beers, Cees & Dekker, Ronald, 2009. "Acquisitions, Divestitures and Innovation Performance in the Netherlands," MPRA Paper 13464, University Library of Munich, Germany.
    14. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.

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