How Do Industry Peers Respond to Control Threats?

Management Science, Forthcoming

39 Pages Posted: 23 Jun 2013

See all articles by Henri Servaes

Henri Servaes

London Business School; Centre for Economic Policy Research (CEPR)

Ane Tamayo

London School of Economics & Political Science (LSE)

Date Written: March 1, 2013

Abstract

This paper studies how industry peers respond when another firm in the industry is the subject of a hostile takeover attempt. The industry peers cut their capital spending, free cash flows, and cash holdings, and increase their leverage and payouts to shareholders. They also adopt more takeover defenses. The stock price reaction upon announcement of the takeover is positive and larger for peer firms with higher capital spending and higher free cash flows. Before the takeover attempt, the peer firms borrow less and invest more than predicted. Both stock returns and performance improve after the takeover attempt. These results are consistent with the argument that the control threat has important spillover effects for the other firms in the industry.

Keywords: Hostile takeover, agency costs, investment decisions, capital structure, payout policy, takeover defenses

JEL Classification: G31, G32, G34, G35

Suggested Citation

Servaes, Henri and Tamayo, Ane Miren, How Do Industry Peers Respond to Control Threats? (March 1, 2013). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2283625

Henri Servaes (Contact Author)

London Business School ( email )

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HOME PAGE: http://faculty.london.edu/hservaes/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ane Miren Tamayo

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 (0)20 78494689 (Phone)

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