The Decline of Takeovers and Disciplinary Managerial Turnover

Abstract

Among U.S. industrial companies that are not acquired we compare top management turnover between an active takeover period (1984-1988) and a less active period (1989-1993). For firms in the lowest quartile of performance, as measured by operating income scaled by assets, 33% subsequently experienced complete turnover of the holders of the top three offices in the active takeover period and 17% experienced complete turnover in the less active takeover period. A regression analysis that controls for various possible determinants of management turnover shows that turnover and performance are related only in the active takeover period. We conclude that managerial discipline is linked to takeover activity in the economy.

JEL Classification: J53