Carline, Nicholas F.

Linn, Scott C.

Yadav, Pradeep K.

English

The “board passivity rule” in 19 E.U. countries and the U.K. requires target firm boards to remain neutral in the event of a takeover bid, with all resistance actions formally needing ex ante shareholder consideration and approval.We empirically investigate post-bid transactional takeover resistance in the U.K., a legal environment that also precludes generic structural anti-takeover provisions like poison pills. We focus on whether or not the takeover resistance strategy includes retaliation with a severely obstructive operational and/or financial transaction intended to frustrate the takeover bid. More than 40% of hostile bids in our 15-year sample involve such a “frustrating” action. We find that, relative to more passive resistance, a frustrating action is associated with significantly lower target undervaluation, lower target-firm performance, and greater target-management preference for control. We further find that a frustrating action can be causally linked to a greater likelihood of the CEO being fired subsequent to the bid, and to abnormally negative stockholder wealth effects. Overall, our empirical findings are suggestive of a frustrating action being motivated more by managerial entrenchment than by the objective of maximizing shareholder price improvement, thereby raising serious doubts about the effectiveness of the board passivity rule

University of Birmingham Research Portal

Severely Obstructive Resistance in Takeover Bids:Is a Board Passivity Rule Effective?

http://pure-oai.bham.ac.uk/ws/files/88533343/Carline_Linn_Yadav_2019_Lethality_Of_Managerial_Resistance_In_Hostile_Bids.pdf

Lethality Of Managerial Resistance In Hostile Bids

Abstract

Similar works

Full text

Available Versions

University of Birmingham Research Portal