Hostile-vs.-white-knight bidders

Carolyn Carroll, John M. Griffith and Patricia M. Rudolph
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Carolyn Carroll: College of Commerce and Business Administration, University of Alabama, AL, USA, Postal: College of Commerce and Business Administration, University of Alabama, AL, USA
John M. Griffith: College of Business and Public Administration, Old Dominion University, Norfolk, VA, USA, Postal: College of Business and Public Administration, Old Dominion University, Norfolk, VA, USA
Patricia M. Rudolph: College of Commerce and Business Administration, University of Alabama, AL, USA, Postal: College of Commerce and Business Administration, University of Alabama, AL, USA

Managerial and Decision Economics, 1999, vol. 20, issue 3, 163-171

Abstract: We examine the hypothesis that white knights enter control contests to spend free cash flow instead of paying it out to shareholders. Tobin's q is used to measure management's inclination to invest in negative NPV investments. We find that historically, white knights have over-invested and their acquisition of the target is one more negative NPV investment. Alternatively, hostile bidders' past investment decisions have increased shareholder wealth. Furthermore, white knights' returns upon the announcement of their bid have a significant negative relationship with free cash flow, implying that their bid reveals information about white knights management's investment decisions. Copyright © 1999 John Wiley & Sons, Ltd.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:20:y:1999:i:3:p:163-171

DOI: 10.1002/(SICI)1099-1468(199905)20:3<163::AID-MDE923>3.0.CO;2-7

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