Is the more able manager always safer from takeover?

Mingchao Cai, Yue Li, Yongxiang Wang and Rong Xu ()

Economic Modelling, 2010, vol. 27, issue 1, 28-31

Abstract: It's commonly believed that managers with higher ability would be less likely to be taken over. We set out a model, which is built on Zwiebel (1996), to show that there is no monotonic relationship between manager's ability and the probability of being taken over. A manager with relatively high ability would be taken over since this manager cannot commit to renegotiating debt contract with the creditor after taking on a bad project; anticipating this, the raider would take over the firm and remove the high-ability manager in the first place.

Keywords: Takeover; Managerial; entrenchment; Credible; commitment; Renegotiation-proof (search for similar items in EconPapers)
Date: 2010
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