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Bid Resistance by Takeover Targets: Managerial Bargaining or Bad Faith?

Published online by Cambridge University Press:  15 June 2017

Thomas W. Bates  and
David A. Becher
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Abstract

This paper examines management’s motives for rejecting takeover bids and the associated shareholder wealth effects. We develop measures of initial bid quality and find a significant negative correlation between the quality of a bid and rejection. The likelihood of higher follow-on offers decreases with bid quality and is greater when targets have classified boards and chief executive officers (CEOs) with significant personal wealth tied to the transaction. Target CEOs who fail to close high-quality offers experience a significant rate of forced turnover. Overall, the results support a price improvement motive for contested bids.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 52 , Issue 3 , June 2017 , pp. 837 - 866
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2017 

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Footnotes

1

We thank Vladimir Atanasov, Andriy Bodnaruk, Matt Cain, Shane Corwin, David Denis, Espen Eckbo (the referee), Scott Gibson, Katherine Guthrie, Michael Lemmon, Laura Lindsey, Paul Malatesta (the editor), Harold Mulherin, Michael Roberts, Harley (Chip) Ryan, Jan Sokolowsky, Denis Sosyura, Karin Thorburn, Ralph Walkling, and Mark Wolinsky as well as seminar participants at the College of William and Mary, Notre Dame University, Pennsylvania State University, the University of Kentucky, the University of Michigan, the 2012 American Finance Association meetings, the 2012 Finance Down Under meetings, and the 2011 American Law and Economics Association meetings for their comments and suggestions. Dane Kline and Zhichuan Li provided excellent research support.

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