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Does Takeover Activity Cause Managerial Discipline? Evidence from International M&A Laws

Review of Financial Studies, Forthcoming

79 Pages Posted: 24 Dec 2010 Last revised: 24 Nov 2014

Ugur Lel

University of Georgia - Department of Banking and Finance

Darius P. Miller

Southern Methodist University (SMU) - Edwin L. Cox School of Business

Date Written: October 24, 2014

Abstract

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.

Keywords: threat of takeover, managerial discipline, mergers and acquisitions laws, corporate control

JEL Classification: G34, G38, K22

Suggested Citation

Lel, Ugur and Miller, Darius P., Does Takeover Activity Cause Managerial Discipline? Evidence from International M&A Laws (October 24, 2014). Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1730316 or http://dx.doi.org/10.2139/ssrn.1730316

Ugur Lel (Contact Author)

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

Darius P. Miller

Southern Methodist University (SMU) - Edwin L. Cox School of Business ( email )

P.O. Box 750333
Dallas, TX 75275-0333
United States

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