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Conference Paper: What do managers do when immune from hostile takeover threats?

TitleWhat do managers do when immune from hostile takeover threats?
Authors
KeywordsManagerial entrenchment
Agency costs of free cash flows
Capital market controls
Internal control systems
Staggered board Poison pill
Issue Date2010
Citation
The 2010 China International Conference in Finance (CICF 2010), Beijing, China, 4-7 July 2010. How to Cite?
AbstractThis paper adopts the mid-1990s Delaware antitakeover regime shift as a natural experiment to examine how the removal of hostile takeover threats affects managers’ decisions on corporate financing and investment, and how it impacts on firm value. Our Differences-in-Differences-in-Differences analysis shows that, consistent with managerial agency models of capital structure and the free cash flow hypothesis of Jensen (1986), managers use lower debt financing and make higher capital expenditures and corporate acquisitions when protected from takeovers. These entrenched behaviors destroy firm value. In addition, we find the impacts of the exogenous changes in market control are more significant for firms with lower managerial ownerships or lower institutional holdings, lending supports to the arguments of Jensen (1993) that effective internal control systems can alleviate the negative impacts of weakened capital market controls.
Persistent Identifierhttp://hdl.handle.net/10722/130272

 

DC FieldValueLanguage
dc.contributor.authorLiu, Zen_US
dc.contributor.authorMeng, Ren_US
dc.date.accessioned2010-12-23T08:48:40Z-
dc.date.available2010-12-23T08:48:40Z-
dc.date.issued2010en_US
dc.identifier.citationThe 2010 China International Conference in Finance (CICF 2010), Beijing, China, 4-7 July 2010.en_US
dc.identifier.urihttp://hdl.handle.net/10722/130272-
dc.description.abstractThis paper adopts the mid-1990s Delaware antitakeover regime shift as a natural experiment to examine how the removal of hostile takeover threats affects managers’ decisions on corporate financing and investment, and how it impacts on firm value. Our Differences-in-Differences-in-Differences analysis shows that, consistent with managerial agency models of capital structure and the free cash flow hypothesis of Jensen (1986), managers use lower debt financing and make higher capital expenditures and corporate acquisitions when protected from takeovers. These entrenched behaviors destroy firm value. In addition, we find the impacts of the exogenous changes in market control are more significant for firms with lower managerial ownerships or lower institutional holdings, lending supports to the arguments of Jensen (1993) that effective internal control systems can alleviate the negative impacts of weakened capital market controls.-
dc.languageengen_US
dc.relation.ispartofChina International Conference In Finance-
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectManagerial entrenchment-
dc.subjectAgency costs of free cash flows-
dc.subjectCapital market controls-
dc.subjectInternal control systems-
dc.subjectStaggered board Poison pill-
dc.titleWhat do managers do when immune from hostile takeover threats?en_US
dc.typeConference_Paperen_US
dc.identifier.emailLiu, Z: jasonliu@hku.hken_US
dc.identifier.emailMeng, R: meng@hku.hk-
dc.identifier.authorityMeng, R=rp01086en_US
dc.description.naturepostprint-
dc.identifier.hkuros177218en_US
dc.description.otherThe 2010 China International Conference in Finance (CICF 2010), Beijing, China, 4-7 July 2010.-

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