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Existing theory suggests that, in an unregulated market for corporate control, the level of takeovers is suboptimal because shareholders do not receive the full benefit from them. However, existing theory neglects that the threat of takeover may divert managerial effort from productive to defensive activities. This paper shows that, when this is considered, takeovers may, in fact, be excessive. [ABSTRACT FROM AUTHOR]

Research Summary: This paper explores the stock market performance of acquisitions and divestitures where both, one, or neither of the companies in the transaction are family firms. We find that acquirer shareholder returns are highest when family firms buy businesses from non‐family firm divesters, especially when family chief executive officer (CEO) acquirers buy businesses from non‐family CEO divesters. Additionally, divester shareholder returns are highest when family firms sell businesses to non‐family firm acquirers, especially when family CEO divesters sell businesses to non‐family CEO acquirers. These findings reveal that it is important to consider the characteristics of both the acquiring and divesting firms when analyzing acquisition and divestiture performance, and that the expected gains to family firm acquisitions and divestitures are driven by transactions in which the counterparties are non‐family firms. Managerial Summary: This paper explores how investors react to acquisitions and divestitures where both, one, or neither of the companies in the deal are family firms. The stock market performance of acquiring firms is highest when family firms buy businesses from non‐family firms, relative to the other three possible combinations of family and non‐family firm acquirers and divesters. Likewise, the stock market performance of divesting firms is highest when family firms sell businesses to non‐family firms, again relative to the other three possible combinations of family and non‐family acquirers and divesters. These findings suggest that investors take into consideration the identities of both the acquiring and divesting firms when evaluating acquisitions and divestitures, and that this has significant implications for the expected performance gains of these transactions. [ABSTRACT FROM AUTHOR]

Capital market data were used to examine the divestiture effects pertaining to deregulation, the dropping of antitrust charges, and the reversing of the co-insurance effect associated with the recent breakup of AT&T. The empirical results of the study indicate that significant economic events took place during the breakup process, which led to transfers of wealth from various parties to the securityholders of AT&T. The results also indicate that the buffering effect of regulation was reduced as AT&T went through the total deregulation process. This is in accordance with Peltzman's prediction. [ABSTRACT FROM AUTHOR]

In summary, the single period wealth constraint of the L-G model is generally supported by the empirical data examined. Both parametric and nonparametric statistics rejected the null hypothesis of no difference in ex ante and ex post PE ratios. However, both announcement and consummation effects produced wealth losses for one or both constituents for at least forty percent of the mergers sampled during 1960-69. Consequently, the reliability of the L-G merger pricing model might be improved by (a) relaxation of the single period wealth constraint and (b) respecification of the "rationality" constraint to include risk-return changes. In any event, the L-G model certainly provides a useful point of departure for future research. [ABSTRACT FROM AUTHOR]

This study reports on an empirical effort directed at determining whether the legal union of two firms produces effects different from those which might otherwise accompany an informal purchase of both companies' shares by the portfolio investor. Although we direct our attention to mergers which are basically non-conglomerate in nature, extensive analysis reveals that merger fails to produce economically significant changes in the distribution of rates of return to the stockholder. Our attention centers on the risk attributes of the distribution, and we do not address dollar benefits of combination which are capitalized in the stock price with the announcement and subsequent consummation of the combination. This study follows several others in the literature which have attempted to assess the consequences of merger. The approaches taken to the problem are varied and the conclusions drawn are in some respects conflicting. [ABSTRACT FROM AUTHOR]

Golden parachutes are a new and controversial management perquisite that allow covered managers to voluntarily resign and collect substantial remuneration--in some cases several million dollars--after a triggering event, usually a hostile takeover. This ability to unilaterally pull a ripcord has provoked much criticism of this perquisite. Critics of golden parachutes see them as evidence that senior managers can he more interested in maximizing their own incomes than in shareholder returns. Business Week, for example, in an editorial entitled "The Gilded Ripoff," stated that the ethical difference hetween golden parachutes and theft is "hard to discern" (1982:136). On the other hand, proponents of golden parachutes justify them as a means of attracting and keeping new managerial talent as well ensuring that current management remains objective, loyal, and on board during a hostile takeover attempt. What characteristics are firms that give managers contracts with golden parachutes likely to have? One possible factor is the composition of a firm's board of directors, since it is the board that must ultimately approve such arrangements. Perhaps directors who are insiders are likely to be less independent of the CEO and senior management than are directors who are outsiders. Bacon and Brown reported general agreement among board members of major U.S. corporations that "the board should have a majority of outside directors. . . . [to] properly carry out its responsibilities and maintain its necessary independence of management" (1977:91). This suggests that if managers want golden parachutes they are more likely to get them in firms that have a high percentage of directors who are insiders. Thus we expect: Hypothesis 1: The probability that firms will give their management golden parachute contracts is positively related to the percentage of directors who are insiders. Another factor likely to be related to whether or not firms provide golden parachutes is the amount of stock that members of boards of directors own. Directors who own substantial amounts of stock should be more inclined to put the interests of stockholders above those of management. To the extent that golden parachutes are unwarranted diversions of stockholder monies, they should be more common in firms with boards that own relatively little of the firms' stock than in firms with boards that own much stock. Thus: Hypothesis 2: The probability that firms will grant golden parachute contracts is negatively related to the percentage of total stock outstanding that their boards of directors own. The size of firms is likely to be related to their propensity to issue golden parachutes. Large firms, at least until 1984, were not considered likely takeover targets, so their managements had less incentive to acquire this particular perquisite than did small firms' managers. In addition, small firms may feel more need to offer such an exotic perquisite than do large firms. Thus: Hypothesis 3: The probability that firms will grant golden parachute contracts is negatively related to their size. Firms that are underperforming and therefore not achieving full potential profits are more likely to be takeover targets than are firms with healthy profits. Further, underperformers are more likely than strong firms to find it difficult to attract and retain qualified managers. Thus: Hypothesis 4: The probability that firms will grant golden parachute contracts is negatively related to their financial performance. Finally, since debt is unattractive to a potential raider, firms that are highly leveraged are less likely takeover targets than those that are not. In fact, adding financial leverage is a defensive tactic often used to avoid takeovers (Brealey & Myers, 1981: 674). Thus we expect: Hypothesis 5: The probability that firms will grant golden parachute contracts is negatively related to their debt. [ABSTRACT FROM AUTHOR]

Merger literature suggests that the relationship between shareholder gains and the relatedness of merging firms is contingent upon the compatibility of the two firms' top management cultures. This hypothesis is tested by surveying the perceptions of cultural differences of top management teams of recently acquired firms, and then relating these perceptions to related stock market gains to the buying firms. The findings suggest a strong inverse relationship between perceptions of cultural differences and shareholder gains, after controlling for perceptions of the buying firm's tolerance for multiculturalism and the relative size of the merging firms. [ABSTRACT FROM AUTHOR]

Is it too much to pay target firm shareholders a 50% premium on top of market price? Or is it too much to pay a 100% premium when pursuing mergers and acquisitions? How much is too much? In this paper, we examine how the extent of merger premiums paid impacts both the long-run and announcement period stock returns of acquiring firms. We find no evidence that acquirers paying high premiums underperform those paying relatively low premiums in three years following mergers, and the result is robust after controlling for a variety of firm and deal characteristics. Short term cumulative abnormal returns are moreover positively correlated to the level of the premium paid by acquirers. Our evidence therefore suggests that high merger premiums paid are unlikely to be responsible for acquirers' long-run post merger underperformance. [ABSTRACT FROM AUTHOR]

Who owns the firm? Do changes in owner matter? Will change affect the operational and strategic role of the HR function? For some, the answer will be no precisely because mergers and acquisitions, takeovers, buyouts and privatisations are central activities for a British-based business where short-term value for shareholders and financial engineering are key management objectives that structure and inform the work of HR professionals. For other readers, the answer may well be yes; ownership and owner strategies do matter, particularly if a firm is acquired by a relatively new actor in the market for corporate control – the private equity firm. [ABSTRACT FROM AUTHOR]

We examine abnormal returns around the announcement of antitakeover amendment proposals for evidence on variation in the effectiveness of monitoring by outside stockholders. The evidence suggests that the market views large stockholders who are outsiders but have potential business ties to a firm (affiliated blockholders) as less effective monitors than other outside blockholders (unaffiliated blockholders). Abnormal returns tend to be lower at firms where holdings of affiliated blockholders exceed holdings of unaffiliated blockholders than at firms where the reverse is true. The difference in the stock ownership of these two classes of blockholders explains more of the variation in abnormal returns than factors such as management stock ownership and board composition. The evidence for affiliated and unaffiliated block- holders is consistent when we focus on the relation between abnormal returns and institutional ownership. No evidence is found of systematic variation in the effectiveness of monitoring by institutional stockholders who are not blockholders. [ABSTRACT FROM AUTHOR]

The article discusses the role of controlling shareholders in business groups. An important and growing literature in finance points to existence of considerable benefits to being a controlling shareholder. At the same time, the well established literature on mergers finds these key corporate events to be subject to agency costs. Relying on these two arguments, the authors employ a novel application of the Bertrand et al. (2002) insight to study the hypothesis that controlling shareholders use acquisitions to expropriate resources to their benefit. The findings do not allow us to reject the null hypothesis of proportional sharing of acquisition gains in favor of the alternative hypothesis of expropriation of to agency minority shareholders.

The non-involvement of target management in a tender offer has further been argued to be a desirable feature of this form of transferring control over corporate assets, since it may provide the additional benefit of displacing poorly performing management. The threat of a tender offer is seen as inciting managers to better performance and enriching shareholders. However, this argument suggests tender offers are more desirable than mergers and that recent tender offer experience is an improvement over the previous almost complete reliance on mergers to alter control over corporate assets. The object of this article is to examine the contractual relation between shareholders and managers, how tender offers from an outside party affect this relation and to suggest that it may well be in shareholders' as well as managers' interest to agree to restrict the possibility for outsiders to disrupt their relation with a hostile tender offer. Section I of the article characterizes the relation between manager and shareholders and the nature of the contracts, which might be expected between the two. Section II considers the effect of hostile tender offers on this contractual relationship and suggests a possible beneficial role for severance benefits like golden parachutes paid to employees in event of a corporate takeover.

The paper examines recent merger and takeover activity in the United Kingdom. Specifically, the impact of takeovers on shareholder returns and management benefits is analyzed, and some implications for the theory of the firm are drawn from the results. The research showed that mergers and takeovers resulted in benefits to the acquired firms' shareholders and to the acquiring companies' managers, hut that losses were suffered by the acquiring companies' shareholders. The results are consistent with takeovers being motivated more by maximization of management utility reasons, than by the maximization of shareholder wealth. [ABSTRACT FROM AUTHOR]

The article discusses modifications made to a family tree introduced by scholar Lewis A. Carman in 1932. He used the tree to analyze the use of equity ratios in distributing the combined capital stock and surplus on the balance sheets of companies affiliated by both unilateral and bilateral common stockholdings. The family tree is adapted very slightly to have it obey some modem principles of family tree construction like arrows point with the force of authority, percentages of ownership and separate family trees are made for each class of stock. In 1948, the use of equity ratios was extended to the preparation of income and surplus statements involving both common and preferred stockholdings, and a mechanical method of calculating the equity ratios was introduced for use after the ratios of the bilateral groups have been computed. In 1949, a new formula for computing the equity ratios for bilateral stockholdings was developed in an advanced course in consolidations at The University of Texas by Myles Joseph Aaronson. The new formula is very simple to use because the determinant aspects cancel out leaving an equation, which enables anyone to handle the most difficult cases of mutual stockholdings, by using only simple arithmetic processes.