Decoupling Management Inefficiency: Myopia, Hyperopia and Takeover Likelihood

20 Pages Posted: 17 Jan 2020

See all articles by Abongeh A. Tunyi

Abongeh A. Tunyi

The University of Sheffield

Collins G. Ntim

University of Southampton Business School, UK; University of Southampton

Jo Danbolt

University of Edinburgh Business School

Date Written: January 10, 2019

Abstract

Using combinations of accounting and stock market performance measures, we advance a comprehensive multidimensional framework for modelling management performance. This framework proposes “poor” management, “myopia”, “hyperopia” and “efficient” management, as four distinct attributes of performance. We show that these new attributes align with, and extend, existing frameworks for modelling management short-termism. We apply this framework to test the management inefficiency hypothesis using UK data over the period 1988 to 2017. We find that takeover likelihood increases with “poor” management and “myopia”, but declines with “hyperopia” and “efficient” management. Our results suggest that managers who focus on sustaining long-term shareholders' value, even at the expense of current profitability, are less likely to be disciplined through takeovers. By contrast, managers who pursue profitability at the expense of long-term shareholder value creation are more likely to face takeovers. Finally, we document the role of bidders as enforcers of market discipline.

Keywords: Hyperopia, Inefficient management hypothesis, Management performance, Myopia, Takeovers

JEL Classification: G14, G32, G34, M41

Suggested Citation

Tunyi, Abongeh A. and Ntim, Collins G. and Danbolt, Jo, Decoupling Management Inefficiency: Myopia, Hyperopia and Takeover Likelihood (January 10, 2019). International Review of Financial Analysis, Vol. 62, 2019. Available at SSRN: https://ssrn.com/abstract=3512567

Abongeh A. Tunyi (Contact Author)

The University of Sheffield ( email )

17 Mappin Street
Sheffield, Sheffield S1 4DT
United Kingdom

Collins G. Ntim

University of Southampton Business School, UK ( email )

Southampton Business School
Highfield
Southampton, England SO17 IBJ
United Kingdom
+44 (0) 238059 4285 (Phone)
+44 (0) 238059 3844 (Fax)

HOME PAGE: http://www.southampton.ac.uk/business-school/about/staff/cgn1n11.page

University of Southampton ( email )

Southampton, SO17 1BJ
United Kingdom

Jo Danbolt

University of Edinburgh Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
UNITED KINGDOM

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