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The role of executives in hostile takeover attempts

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  • Mohd Irfan

Abstract

This paper proposes a two-stage game theoretic model in which the discretionary power of executives acts as an implicit defense against hostile takeovers. Following managerial enterprise models, this paper analyzes the effects of target’s executives’ discretionary power over R&D and advertising in defeating hostile takeover attempts. It is shown that in vertically differentiated industries, in equilibrium, target’s executive keep low level of R&D and advertising to make their firm an unattractive target for hostile takeovers. The model reveals that the executives are influenced by their self-interest of monetary and non-monetary benefits and this self-interest behavior makes the industry less differentiated. Additionally, the firm’s takeover (hostile or friendly) is endogenously determined by the executives.
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  • Mohd Irfan, 2011. "The role of executives in hostile takeover attempts," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 6(1), pages 29-40, May.
    • Handle: RePEc:spr:jeicoo:v:6:y:2011:i:1:p:29-40
    DOI: 10.1007/s11403-010-0074-6
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    More about this item

    Keywords

    Executive discretion; Hostile takeovers; R&D; Advertisement; Vertically differentiated industry; D43; G34; L15; M37;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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