What Actually Causes Management to Resist a Takeover Bid: Managerial Entrenchment or Price Improvement?
64 Pages Posted: 23 Aug 2019
Date Written: July 8, 2019
Using instrumental variables, we find that having more antitakeover provisions is not only more likely to prevent a bid but also more likely to cause management resistance in the event of not doing so. The deterrent effect is likely to be decreasing in the cost to rival bidders of acquiring information about the target firm. Our findings support the notion that managerial entrenchment causes management resistance rather than that the motive is to compensate for having less pre-bid defenses and thus weaker bargaining power for price improvement. We also find that a lower premium is unlikely to cause management resistance.
Keywords: antitakeover provisions, takeover bid, management resistance, managerial entrenchment, price improvement
JEL Classification: G34, G38
Suggested Citation: Suggested Citation