Bid Resistance by Takeover Targets: Managerial Bargaining or Bad Faith?
47 Pages Posted: 5 Jun 2012 Last revised: 4 Sep 2015
Date Written: September 3, 2015
This paper examines management’s motives for rejecting takeover bids and the associated shareholder wealth effects. We develop several measures of initial bid quality and find a significant negative correlation between contested offers and bid quality. The likelihood of higher follow-on offers decreases in bid quality and is greater when targets have classified boards and CEOs have significant personal wealth tied to the transaction. Moreover, CEOs who fail to close high quality offers experience a significant rate of forced turnover. Overall, the results support a price improvement motive for contested bids.
Keywords: classified boards, hostile bids, mergers and acquisitions, CEO turnover
JEL Classification: G34, J33, K22
Suggested Citation: Suggested Citation