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How Do Industry Peers Respond to Control Threats?

Author

Listed:
  • Henri Servaes

    (London Business School, London NW1 4SA, United Kingdom; Centre for Economic Policy Research, London EC1V 3PZ, United Kingdom; and European Corporate Governance Institute, 1180 Brussels, Belgium)

  • Ane Tamayo

    (London School of Economics and Political Science, London WC2A 2AE, United Kingdom)

Abstract

This paper studies how industry peers respond when another firm in the industry is the subject of a hostile takeover attempt. The industry peers cut their capital spending, free cash flows, and cash holdings, and increase their leverage and payouts to shareholders. They also adopt more takeover defenses. The stock price reaction upon announcement of the takeover is positive and larger for peer firms with higher capital spending and higher free cash flows. Before the takeover attempt, the peer firms borrow less and invest more than predicted. Both stock returns and performance improve after the takeover attempt. These results are consistent with the argument that the control threat has important spillover effects for the other firms in the industry. This paper was accepted by Wei Xiong, finance.

Suggested Citation

  • Henri Servaes & Ane Tamayo, 2014. "How Do Industry Peers Respond to Control Threats?," Management Science, INFORMS, vol. 60(2), pages 380-399, February.
    • Handle: RePEc:inm:ormnsc:v:60:y:2014:i:2:p:380-399
    DOI: 10.1287/mnsc.2013.1773
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