Management Practices and Takeover Decisions

Manthos Delis (), Pantelis Kazakis and Constantin Zopounidis

Working Papers from Business School - Economics, University of Glasgow

Abstract: Firms with good management practices optimize and synthesize human resources, leadership, and technical and conceptual skills to enhance firm value. In this paper, we examine the role of management practices in merger and acquisition (M&A) decisions. M&A decisions are among the most important corporate decisions, on which firms spend a lot of resources and managerial qualities. We estimate management practices as a latent variable using a structural equation production model and Bayesian techniques. The key advantage of the Bayesian approach is the use of informative priors from survey-based management estimation methods, which are however available for a limited number of firms. Subsequently, we examine the effect of management practices on takeover events. We first show that management practices, on average, increase the probability of M&A deals. However, we also uncover a nonlinear U-shaped effect, which is consistent with the theoretical premise that poor management leads to many value-decreasing M&A deals, whereas good management leads to many value-increasing M&A deals.

Keywords: OR in corporate finance; Management practices; Bayesian methods; Mergers and acquisitions; Nonlinear models (search for similar items in EconPapers)
JEL-codes: C11 C30 G14 G34 (search for similar items in EconPapers)
Date: 2021-06
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-com and nep-cwa
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2021_10

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