Agency Theory, Managerial Welfare, and Takeover Bid Resistance

Abstract

Tender offers provide an ideal setting for the analysis of agency relationships since the best interests of the principal (target firm shareholders) and agent (target firm managers) are often in conflict. Moreover, the actions and stated rationale of target managers in resisting or not resisting tender offers are readily observable, and the size of the possible agency costs is great. This research provides direct empirical evidence on the relationship between managerial welfare and takeover bid resistance. Tests on a sample of cash tender offers provide support for the managerial welfare hypothesis. The existence or absence of bid resistance is found to be directly related to the personal wealth changes of the target firm's managers. The relationships between managerial actions and bid premium size, bidder nationality, conglomerate offers, and "ex post settling up" are also examined.

Keywords: agency theory, takeovers, resisted acquisitions

JEL Classification: G34, G32