Working Paper: NBER ID: w2295
Authors: Randall Morck; Andrei Shleifer; Robert W. Vishny
Abstract: Compared to an average Fortune 500 firm, a target of a hostile takeover is smaller, older, has a lower Tobin's Q, invests less of its income, and is growing more slowly. The low Q seems to be an industry-specific rather than a firm-specific effect. In addition, a hostile target is less likely to be run by a member of the founding family, and has lower officer ownership, than the average firm. In contrast, a target of a friendly acquisitions is smaller and younger than an average Fortune 500 firm, and has comparable Tobin's Qs and most other financial characteristics. Friendly targets are more likely to be run by a member of the founding family, and have higher officer ownership, than the average firm. The decision of a CEO with a large stake and/or with a relationship to a founder to retire often precipitates a friendly acquisition. These results suggest that the motive for a takeover often determines its mood. Thus disciplinary takeovers are more often hostile, and synergistic ones are more often friendly.
Keywords: takeovers; hostile takeovers; friendly takeovers; Tobin's q; corporate governance
JEL Codes: G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| low Tobin's q (G19) | hostile takeover likelihood (G34) |
| older, slower-growing firms (D25) | hostile takeover (G34) |
| younger firms (L26) | friendly takeover (G34) |
| high management ownership (G34) | less likely to be hostile targets (Y50) |