Bid Resistance by Takeover Targets: Managerial Bargaining or Bad Faith?

Thomas W. Bates and David Becher

Journal of Financial and Quantitative Analysis, 2017, vol. 52, issue 3, 837-866

Abstract: This paper examines management’s motives for rejecting takeover bids and the associated shareholder wealth effects. We develop measures of initial bid quality and find a significant negative correlation between the quality of a bid and rejection. The likelihood of higher follow-on offers decreases with bid quality and is greater when targets have classified boards and chief executive officers (CEOs) with significant personal wealth tied to the transaction. Target CEOs who fail to close high-quality offers experience a significant rate of forced turnover. Overall, the results support a price improvement motive for contested bids.

Date: 2017
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