Managerial Performance, Boards of Directors and Takeover Bidding

Journal of Corporate Finance, Vol. 1, No. 1, pp. 63-90, 1994

Posted: 1 Dec 2008

See all articles by Anjan V. Thakor

Anjan V. Thakor

Washington University, Saint Louis - John M. Olin School of Business; European Corporate Governance Institute (ECGI)

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Abstract

This paper models the maintenance of management quality through the simultaneous functioning of internal and external corporate control mechanisms - board dismissals and takeovers. We examine how the information sets of the board and the acquiror are noisily aggregated, and how this affects the behavior of the board and the acquiror. The board of directors, acting in shareholders' interests, will sometimes oppose a takeover, and this opposition can be good news for the firm. An unsuccessful takeover attempt may be followed by a high rate of management turnover, because a takeover attempt conveys adverse information possessed by the bidder about the manager. If there is a probability that the board is ineffective, then a forced resignation of the manager can be either good or bad news for the firm. A positive effect is predicted to dominate when there is more adverse public information available about the manager's performance and when there is a higher ex ante probability that the board is ineffective, for example, if the board is management-dominated rather than outsider-dominated.

Suggested Citation

Thakor, Anjan V. and Hirshleifer, David A., Managerial Performance, Boards of Directors and Takeover Bidding. Journal of Corporate Finance, Vol. 1, No. 1, pp. 63-90, 1994. Available at SSRN: https://ssrn.com/abstract=1287738

Anjan V. Thakor

Washington University, Saint Louis - John M. Olin School of Business ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

David A. Hirshleifer (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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