Hostname: page-component-78c5997874-g7gxr Total loading time: 0 Render date: 2024-11-03T08:08:38.615Z Has data issue: false hasContentIssue false
  • English
  • Français

Takeover Defenses and Dilution: A Welfare Analysis

Published online by Cambridge University Press:  06 April 2009

Atreya Chakraborty  and
Richard Arnott
Get access Rights & Permissions [Opens in a new window]

Abstract

Existing theory suggests that, in an unregulated market for corporate control, the level of takeovers is suboptimal because shareholders do not receive the full benefit from them. However, existing theory neglects that the threat of takeover may divert managerial effort from productive to defensive activities. This paper shows that, when this is considered, takeovers may, in fact, be excessive.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 36 , Issue 3 , September 2001 , pp. 311 - 334
Copyright
Copyright © School of Business Administration, University of Washington 2001

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Bagnoli, M., and Lipman, B. L.. “Successful Takeovers Without Exclusion”. Review of Financial Studies, 1 (1989), 89–110.CrossRefGoogle Scholar
Bagwell, L. S. “Dutch Auction Repurchases: An Analysis of Shareholder Heterogeneity”. Journal of Finance, 42 (1992), 71–106.CrossRefGoogle Scholar
Bettis, C. J.; Bizjak, J. M.; and Lemmon, M. L.. “Insider Trading in Derivative Securities: An Empirical Examination of the Use of Zero-Cost Collars and Equity Swaps by Corporate Insiers”. Mimeo, Arizona State Univ. (1999).Google Scholar
Bolster, P.; Chance, D.; and Rich, D.. “Executive Equity Swaps and Corporate Insider Holdings”. Financial Management, 25 (1996), 14–24.CrossRefGoogle Scholar
Bradley, D.; Desai, A.; and Kim, E. H.. “Synergistic Gains from Corporate Acquisitions and Their Division between the Stockholders of Target and Acquiring Firms”. Journal of Finance Economics, 21 (1988), 3–40.CrossRefGoogle Scholar
Chakraborty, A., and Arnott, R.. “Takeover Defenses and Dilution: A Welfare Analysis”. Additional Working Paper Series #940803, National Bureau of Economic Research (1994).Google Scholar
Dann, L. Y., and DeAngelo, H.. “Corporate Financial Policy and Corporate Control: A Study of Defensive Adujstments in Asset and Ownership Structure”. Journal of Financial Economics, 20 (1988), 87–128.CrossRefGoogle Scholar
Denis, D. J. “Defensive Changes in Corporate Payout Policy: Share Repurchases and Special Dividends”. Journal of Finance, 45 (1990), 1433–1456.CrossRefGoogle Scholar
Denis, D., and Denis, D.. “Managerial Discretion, Organizational Structure, and Corporate Perfomance: A Stuty of Leveraged Recapitulations”. Journal of Accounting & Economics, 6 (1993), 209–236.CrossRefGoogle Scholar
Grossman, S., and Hart, O.. “Takeover Bids, The Free-Rider Problem, and The Theory of the Corporation”. Bell Journal of Economics, 11, (1980a), 42–64.CrossRefGoogle Scholar
Grossman, S., and Hart, O.. “Disclosure Laws and Takeover Bids”. Journal of Finance, 35 (1980b), 323–333.CrossRefGoogle Scholar
Hall, B. J., and Liebman, J. B., “Are CEO's Really Paid Like Bureaucrats?” Quarterly Journal of Economics, 63 (1998), 653–691.CrossRefGoogle Scholar
Herman, E. S., and Lowenstein, L.. “The Efficiency Effects of Hostile Takeovers”. In Knights, Raiders and Targets: The Impact of the Hostile Takeover, Coffee, J., Lowenstein, L., and Rose-Ackerman, S., eds. New York, NY: Oxford Univ. Press (1988), 211–240.Google Scholar
Jensen, M. C. “The Takeover Controversy: Theory and Evidence”. Midland Corporate Finance Journal, 4 (1986), 6–32.Google Scholar
Jensen, M. C. “The Modern Industrial Revolution, Exit and the Failure of the Internal Control Systems”. Journal of Finance, 48 (1993), 831–880.CrossRefGoogle Scholar
Jensen, M. C., and Murphy, K. J.. “Performance Pay and Top-Management Incentives”. Journal of Political Economy, 98 (1990a), 831–880.CrossRefGoogle Scholar
Jensen, M. C., and Murphy, K. J.. “Perfomance Pay and Top-Management Incentives”. Journal of Political Economy, 98 (1990a), 225–264.CrossRefGoogle Scholar
Jensen, M. C., and Murphy, K. J.. “CEO Incentives It's Not How Much You Pay, But How.” Harvard Business Review (1990b), 138–149.Google Scholar
Labaton, S., and Noris, F.. “Struggle Between Eastern and Unions Enters a Crucial Phase”. New York Times, (03 20, 1989), B5.Google Scholar
Lipton, M.; Fogelson, J. H.; Brownstein, A. R.; and Wasserman, C. M.. “Takeover and Defense Law I: The Takeover Environment.” Mergers, Acquisition, and Leveraged Buyouts, Kuhn, R. L., ed. Homewood, IL: Irwin (1989), 441–485.Google Scholar
Palepu, K. G., and Wruck, K. H.. “Consequences of Leveraged Shareholder Payourts: Defensive Versus Voluntary Recapitalization”. Working Paper 93–006, Harvard Business School (1993).Google Scholar
Scharfstein, D. S. “The Disciplinary Role of Takeovers”. Review of Economic Studies, 55, (1988), 185–199.CrossRefGoogle Scholar
Shleifer, A., and Vishny, R. W.. “Management Entrenchment: A Case of Management-Specific Investments”. Journal of Financial Economics, 25, (1989), 49–56.CrossRefGoogle Scholar
Swoboda, F. “Texas Air Looking to Sell Reservation System to GM: Legality of Reported Plan in Question.” Washington Post (09 22, 1989), G1.Google Scholar
Yermack, D. “Do Corporations Award CEO Stock Options Effectively?” Journal of Financial Economics, 39, (1995), 237–269.CrossRefGoogle Scholar