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Managerial Reaction to Takeover Bids: A Theory of Strategic Resistance

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  • Sankar De
  • Peter J. Knez

Abstract

This paper develops a theory to explain the frequently observed resistance offered by the management of target firms to high‐premium takeover bids. Contrary to the popular perception of managerial entrenchment at the expense of the shareholders' interests, such resistance may be strategically designed to increase shareholder wealth by threatening to initiate an informal auction process fur the target involving other potential bidders. Remarkably, this strategy can be effective even when it is common knowledge that the other bidders do not have a higher reservation price for the target. The analysis also offers insights into division of takeover gains and several other takeover‐related issues.

Suggested Citation

  • Sankar De & Peter J. Knez, 1993. "Managerial Reaction to Takeover Bids: A Theory of Strategic Resistance," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(4), pages 567-592, December.
    • Handle: RePEc:bla:jemstr:v:2:y:1993:i:4:p:567-592
    DOI: 10.1111/j.1430-9134.1993.00567.x
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    References listed on IDEAS

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    Cited by:

    1. Moresi, Serge, 2000. "Information acquisition and research differentiation prior to an open-bid auction1," International Journal of Industrial Organization, Elsevier, vol. 18(5), pages 723-746, July.
    2. Robin Nuttall, 1999. "Takeover Likelihood Models for UK Quoted Companies," Economics Series Working Papers 1999-W06, University of Oxford, Department of Economics.
    3. Gerald T. Garvey & Peter L. Swan, 1995. "Shareholder Activism, “Voluntary” Restructuring, and Internal Labor Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 591-621, December.

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