Corporate financial policy and corporate control: A study of defensive adjustments in asset and ownership structure

Evidence is presented that shareholder wealth decreases on average when managers respond to attempted hostile takeovers with defensive changes in asset and ownership structure. Data were obtained on 33 companies from a preliminary sample of 171 firms that encountered hostile tender offers during 196...

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Bibliographic Details
Published in:Journal of financial economics 1988, Vol.20 (1), p.87-127
Main Authors: Dann, Larry Y, DeAngelo, Harry
Format: Article
Language:English
Subjects:
Business management
Corporate reorganization
Effects
Financial management
Hostile takeovers
Returns
Statistical analysis
Stockholders
Studies
Target company
Tender offers
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Summary:Evidence is presented that shareholder wealth decreases on average when managers respond to attempted hostile takeovers with defensive changes in asset and ownership structure. Data were obtained on 33 companies from a preliminary sample of 171 firms that encountered hostile tender offers during 1962-1983 while exchange-listed. The sample included an announcement only if the Wall Street Journal reported that the hostile bidder made some public announcement that restructuring was motivated defensively. Data indicate that these corporate restructurings are usually very large and that many are attempts by management to build barriers specific to the hostile takeover bidder and/or to consolidate a block of voting securities in the hands of management allies. The evidence suggests that defensive motives influence corporate asset and ownership structure. The findings further indicate that hostile bidders rarely prevail when incumbents implement their planned structural changes.
ISSN:0304-405X
1879-2774
DOI:10.1016/0304-405X(88)90041-4