Poor Industry Conditions as an External Disciplining Mechanism in Takeovers

28 Pages Posted: 13 Mar 2023 Last revised: 22 Jun 2023

See all articles by Jana P. Fidrmuc

Jana P. Fidrmuc

Warwick Business School - Finance Group

Tereza Tykvova

University of St. Gallen - Swiss Institute of Banking and Finance; Swiss Finance Institute

Date Written: March 8, 2023

Abstract

Research Question/Issue: Many mergers destroy shareholder value because managers waste corporate resources to pursue private benefits. This paper considers poor conditions in the acquirer industry as a novel external disciplining mechanism that mitigates agency problems in takeovers. Research Findings/Insights: Using textual analysis, we build a new measure of industry conditions based on acquirer peers' 10-K statements. We link this measure to acquirer announcement abnormal returns and find that more negative industry conditions are associated with higher abnormal returns. Theoretical/Academic Implications: Our results suggest that poor industry conditions impose discipline on managers who then tend to focus on deals that create value for acquirer shareholders. Practitioner/Policy Implications: Shareholders can rely on better alignment of interests with their managers during poorer industry conditions. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.

Keywords: acquirer abnormal returns, corporate governance mechanism, disciplining effect, industry conditions, mergers and acquisitions

JEL Classification: G34, G41

Suggested Citation

Fidrmuc, Jana P. and Tykvova, Tereza, Poor Industry Conditions as an External Disciplining Mechanism in Takeovers (March 8, 2023). Swiss Finance Institute Research Paper No. 23-52, Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2023, Corporate Governance: An International Review, 0 [10.1111/corg.12601], Available at SSRN: https://ssrn.com/abstract=4382183 or http://dx.doi.org/10.1111/corg.12601

Jana P. Fidrmuc (Contact Author)

Warwick Business School - Finance Group ( email )

Warwick Business School
Coventry CV4 7AL
United Kingdom

Tereza Tykvova

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Unterer Graben 21
St. Gallen, CH-9000
Switzerland

Swiss Finance Institute ( email )

Unterer Graben 21
Unterer Graben 21
St.Gallen, 9000
Switzerland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
73
Abstract Views
430
Rank
625,738
PlumX Metrics