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The role of hostile takeovers in corporate governance

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  • Rajeeva Sinha

Abstract

The study makes a distinction between the role of hostile takeovers as a mechanism for downsizing and exit in the process of 'creative destruction' and the role of hostile takeovers as a corporate governance mechanism for curbing managerial slack and opportunism. The likelihood that underperforming firms with ineffective internal governance structures are the targets of hostile takeover bids is examined using a panel data for a matched sample of firms in the UK. The study does not find underperformance in firms as a significant factor in the likelihood of a hostile takeover bid. The findings of the literature reporting a significant influence of underperformance in hostile takeovers appear to be the outcome of a mis-specified model. The study also compares the relationship between governance structure and performance for firms subject to a hostile takeover bid with firms that did not receive a tender offer. The empirical findings do not show that firms with relatively ineffective internal governance structure are the likely targets for hostile takeover bids.

Suggested Citation

  • Rajeeva Sinha, 2004. "The role of hostile takeovers in corporate governance," Applied Financial Economics, Taylor & Francis Journals, vol. 14(18), pages 1291-1305.
    • Handle: RePEc:taf:apfiec:v:14:y:2004:i:18:p:1291-1305
    DOI: 10.1080/0960310042000280492
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    References listed on IDEAS

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    2. Daehwan Kim & Taeyoon Sung, 2009. "Cross-ownership, takeover threat and control benefit," Applied Financial Economics, Taylor & Francis Journals, vol. 19(8), pages 659-667.
    3. Veronique Bessiere & Michael Kaestner & Anne-Laurence Lafont, 2011. "Hedge fund activism: insights from a French clinical study," Applied Financial Economics, Taylor & Francis Journals, vol. 21(16), pages 1225-1234.

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