The Effects of Golden Parachutes on Takeover Activity

Takeover-activated severance pay contracts, popularly termed golden parachutes, have created controversy in regulatory agencies and among shareholders and management alike. The impact of golden parachutes on the likelihood of takeover is examined. A comparison of the takeover frequency of firms with...

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Bibliographic Details
Published in:The Journal of law & economics 1993-10, Vol.36 (2), p.861-876
Main Authors: Machlin, Judith C., Choe, Hyuk, Miles, James A.
Format: Article
Language:English
Subjects:
Book value
Business (takeovers)
Business structures
Contracts
Control groups
Financial management
Golden parachute
Golden parachutes
Hostile takeovers
Impacts
Jensen, Michael C
Law
Market value
Parachutes
Proxy reporting
Proxy statements
Severance pay
Shareholders
Statistical analysis
Studies
United States
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Summary:Takeover-activated severance pay contracts, popularly termed golden parachutes, have created controversy in regulatory agencies and among shareholders and management alike. The impact of golden parachutes on the likelihood of takeover is examined. A comparison of the takeover frequency of firms with golden parachutes with that of the control group suggests that golden parachutes significantly and positively influence the likelihood of takeover. An examination of yearly takeover activity following golden parachute adoption did not support the hypothesis that adoptions are motivated either by existing or impending takeover offers. However, the dollar size of the golden parachute was found to be negatively related to the likelihood of resistance to a takeover offer.
ISSN:0022-2186
1537-5285
DOI:10.1086/467300