Is Hostility in the Merger and Acquisition Market Wasteful? Empirical Evidence of the Economic Costs of Hostility

Abstract:     
The question as to whether hostility is economically wasteful has been subject to intense debate for decades in the literature of law, economics, and finance. Typically the debate is focused in the issue of managerial entrenchment. Commentators frequently adopt an unstated presumption that hostility is wasteful per se. We argue that it is important to examine empirical data before accepting this premise. We investigate long-term, post-acquisition measures of corporate operating performance of hostile acquisitions relative to non-hostile acquisitions. Our results suggest that hostility does not affect operating performance, and from this we infer that there are no economic costs associated with hostility. The findings are robust with respect to a variety of methodologies and control variables.

Keywords: hostility, acquisition, cash flow, performance

JEL Classification: G3, K2

working papers series