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Change in Control and Firm Performance

Author

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  • Yin-Hua Yeh
  • Pei-Gi Shu

Abstract

Whether firms that experienced change in control perform better or worse than before the change remains a puzzling issue. In this study we investigate the firms that experienced change in control and find that poor performing firms tend to be the takeover targets; however, these firms performed even worse after change of control. We find that corporate governance dictates the post-change performance measures. The proportion of directors controlled by the controlling shareholder is negatively related to the post-change performance measures. In contrast, the proportion of directors controlled by the second controlling shareholder is positively related to the post-change performance measures. Furthermore, the performance measures of the targets improved when the controlling shareholder entitled high cash flow rights. Finally, the change-in-control firms are more likely to be trapped in financial distress when the controlling shareholders deeply involved in the board.

Suggested Citation

  • Yin-Hua Yeh & Pei-Gi Shu, 2014. "Change in Control and Firm Performance," Business and Economic Research, Macrothink Institute, vol. 4(2), pages 265-296, December.
    • Handle: RePEc:mth:ber888:v:4:y:2014:i:2:p:265-296
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate Governance; Change in Control; Controlling Shareholder;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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