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
October 24, 2014
Review of Financial Studies, Forthcoming
This paper exploits the staggered initiation of takeover laws across countries to examine whether the threat of takeover enhances managerial discipline. We show that following the passage of takeover laws (1) poorly performing firms experience more frequent takeovers; (2) the propensity to replace poorly performing CEOs increases, especially in countries with weak investor protection; and (3) directors of targeted firms are more likely to lose board seats following corporate control events. Our findings suggest that the threat of takeover causes managerial discipline through the incentives that the market for corporate control provides to boards to monitor managers.
Number of Pages in PDF File: 79
Keywords: threat of takeover, managerial discipline, mergers and acquisitions laws, corporate control
JEL Classification: G34, G38, K22
Date posted: December 24, 2010 ; Last revised: November 24, 2014
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