Corporate takeovers, bargaining and managers' incentives to invest

Marcel Canoy, Yohanes Eko Riyanto () and Patrick Van Cayseele
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Marcel Canoy: Netherlands Central Planning Bureau, Van Stolkweg 14, The Hague, Netherlands, Postal: Netherlands Central Planning Bureau, Van Stolkweg 14, The Hague, Netherlands

Managerial and Decision Economics, 2000, vol. 21, issue 1, pages 1-18

Abstract: This paper analyzes the impact of potential takeovers on the investment decisions of managers. The takeover involves bargaining over the potential surplus between the acquiring firm, the target manager, and shareholders of the target firm. The anticipation of future takeover gains will influence the decision-makers to invest ex ante. Interestingly, both over and underinvestment might prevail, depending on the relative bargaining powers of the parties. The model encompasses specific cases documented in the empirical literature and mergers and acquisitions (M&A) practice. It is, therefore, particularly suited to focus on the desirability of anti-takeover legislation. Copyright © 2000 John Wiley & Sons, Ltd.

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