Does Takeover Activity Cause Managerial Discipline? Evidence From International M&A Laws
Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law
Darius P. Miller
Southern Methodist University (SMU) - Edwin L. Cox School of Business
July 22, 2013
This paper examines the impact of the market for corporate control on managerial discipline around the world. Exploiting an exogenous source of variation in the threat of takeover arising from the staggered initiation of takeover laws across countries, we show that the propensity to replace poorly performing CEOs increases following the enactment of M&A laws. Taking advantage of differences in legal protection as a second source of variation, we find that this increased sensitivity of CEO turnover to performance depends on availability of internal governance mechanisms as substitutes. Finally, we show that following the passage of takeover laws, poorly performing firms experience more frequent takeovers and increases in foreign institutional ownership, suggesting these are two of the mechanisms behind the improvement in corporate governance.
Number of Pages in PDF File: 65
Keywords: threat of takeover, managerial discipline, mergers and acquisitions laws, corporate control
JEL Classification: G34, G38, K22working papers series
Date posted: December 24, 2010 ; Last revised: July 22, 2013
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