Discipline or Disruption? Stakeholder Relationships and the Effect of Takeover Threat

53 Pages Posted: 24 Jan 2011

See all articles by Ling Cen

Ling Cen

The Chinese University of Hong Kong

Sudipto Dasgupta

Chinese University of Hong Kong, ABFER, CEPR, and ECGI

Rik Sen

University of New South Wales (UNSW)

Date Written: January 23, 2011

Abstract

The threat of hostile takeovers can impair the ability of firms to commit to long-term relationships with important stakeholders. Using the passage of business combination laws on a state-by-state basis as a source of exogenous variation, we find that a reduction in the threat of a hostile takeover leads to better operating and stock performance for firms that have principal non-government customers as important stakeholders. Reduction in takeover threat strengthens relationship with existing customers and increases ability to attract new customers. A sizeable literature suggests that shareholders prefer greater vulnerability to hostile takeovers as it reduces agency problems. However, our results imply that this may not be true for firms for which honoring implicit contracts and committing to long-term relationships are especially important.

Keywords: Customer-supplier Relationships, Takeover, Business Combination Law

JEL Classification: G34

Suggested Citation

Cen, Ling and Dasgupta, Sudipto and Sen, Rik, Discipline or Disruption? Stakeholder Relationships and the Effect of Takeover Threat (January 23, 2011). Available at SSRN: https://ssrn.com/abstract=1746422. or http://dx.doi.org/10.2139/ssrn.1746422

Ling Cen (Contact Author)

The Chinese University of Hong Kong ( email )

CYT Building
Sha Tin
Hong Kong, Hong Kong
Hong Kong

HOME PAGE: http:///sites.google.com/site/cenling/

Sudipto Dasgupta

Chinese University of Hong Kong, ABFER, CEPR, and ECGI ( email )

CUHK, Cheng Yu Tung Building, Room 1224
Shatin, NT
Hong Kong
Hong Kong

Rik Sen

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

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