Takeovers: Managerial Incompetence or Managerial Shirking?

James M Griffin and Steven N Wiggins

Economic Inquiry, 1992, vol. 30, issue 2, 355-70

Abstract: Agency theory identifies managerial shirking as the cause for takeovers, while other explanations focus on low-ability managers. This paper formalizes Michael C. Jensen's free cash flow variant of agency theory by constructing a simple two-period game that captures the distinctive empirical implications of the two theories. Using data for petroleum firms following the oil price shock of 1979-80, the authors find that firms undergoing financial restructuring exhibited higher values of Tobin's q. Additionally, evidence of management turnover and workforce cuts emphasizes that takeovers appear primarily designed to address agency concerns. Copyright 1992 by Oxford University Press.

Date: 1992
References: Add references at CitEc
Citations: View citations in EconPapers (2)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:ecinqu:v:30:y:1992:i:2:p:355-70

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Economic Inquiry is currently edited by Preston McAfee

More articles in Economic Inquiry from Western Economic Association International Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().