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Managerial and Disciplinary Responses to Abandoned Acquisitions in Bidding Firms: A New Perspective

Managerial and Disciplinary Responses to Abandoned Acquisitions in Bidding Firms: A New Perspective Manuscript Type Empirical Research Question/Issue Existing research suggests that internal and external corporate governance mechanisms substitute for one another to mitigate agency problems in bidding firms. This paper tests whether the interaction between these mechanisms is more complementary. Research Findings/Insights While there is evidence for disciplinary responses to bids for unrelated targets involving strategic retrenchment and significant asset divestment, the influence of the information conveyed by this characteristic on the likelihood of post‐abandonment discipline is not amplified when boards are less independent. Theoretical/Academic Implications The results suggest that certain characteristics are used to distinguish between abandoned bidders which require discipline and those that do not. However, our findings do not suggest that interaction between internal and external governance mechanisms is contingent on board independence. Instead, these interactions between shareholders and boards seem to be contingent on a range of company, industry, and situation‐specific factors. Practitioner/Policy Implications While policy in the UK has focused on board independence as a means of effective corporate governance, our results suggest that this is not a panacea. Effective governance involves active owners, communicating their interests to boards, and boards responding accordingly. Further encouragement of such communication before, during, and after acquisitions will improve signals to managers that shareholders can target the necessary discipline of those whom they perceive to need it most. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Corporate Governance Wiley

Managerial and Disciplinary Responses to Abandoned Acquisitions in Bidding Firms: A New Perspective

Corporate Governance , Volume 23 (5) – Sep 1, 2015

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References (74)

Publisher
Wiley
Copyright
© 2015 John Wiley & Sons Ltd
ISSN
0964-8410
eISSN
1467-8683
DOI
10.1111/corg.12104
Publisher site
See Article on Publisher Site

Abstract

Manuscript Type Empirical Research Question/Issue Existing research suggests that internal and external corporate governance mechanisms substitute for one another to mitigate agency problems in bidding firms. This paper tests whether the interaction between these mechanisms is more complementary. Research Findings/Insights While there is evidence for disciplinary responses to bids for unrelated targets involving strategic retrenchment and significant asset divestment, the influence of the information conveyed by this characteristic on the likelihood of post‐abandonment discipline is not amplified when boards are less independent. Theoretical/Academic Implications The results suggest that certain characteristics are used to distinguish between abandoned bidders which require discipline and those that do not. However, our findings do not suggest that interaction between internal and external governance mechanisms is contingent on board independence. Instead, these interactions between shareholders and boards seem to be contingent on a range of company, industry, and situation‐specific factors. Practitioner/Policy Implications While policy in the UK has focused on board independence as a means of effective corporate governance, our results suggest that this is not a panacea. Effective governance involves active owners, communicating their interests to boards, and boards responding accordingly. Further encouragement of such communication before, during, and after acquisitions will improve signals to managers that shareholders can target the necessary discipline of those whom they perceive to need it most.

Journal

Corporate GovernanceWiley

Published: Sep 1, 2015

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