In Defense of Defensive Measures

Posted: 25 Aug 1998

See all articles by Oded Sarig

Oded Sarig

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship; University of Pennsylvania - The Wharton School

Eli Talmor

London Business School


We examine how measures that defend incumbent managers against replacement by rival managers affect the information generated in control contests and how this information is used in subsequent investment decisions. We show that commonly used defensive measures allow shareholders to make better investment decisions than they can make absent these measures. Consequently, the adoption of defensive measures can increase shareholders' wealth. We find that good managers are less defended than poor managers and that managers whose interests are closely aligned with those of the shareholders (e.g., via options or bonus plans) are less defended and have more control over firm decisions than managers whose interests are not so well aligned with those of shareholders. We also show that the informational role of defensive measures depends on the relative uncertainty about the quality of both parties to a control contest.

JEL Classification: D89

Suggested Citation

Sarig, Oded H. and Talmor, Eli, In Defense of Defensive Measures. Available at SSRN:

Oded H. Sarig

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship ( email )

P.O. Box 167
Herzliya, 46150

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Eli Talmor (Contact Author)

London Business School ( email )

Regent's Park
London, NW1 4SA
United Kingdom
+44 20 7000 7000 (Phone)

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