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Hostile–vs.–white‐knight bidders
Author(s) -
Carroll Carolyn,
Griffith John M.,
Rudolph Patricia M.
Publication year - 1999
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/(sici)1099-1468(199905)20:3<163::aid-mde923>3.0.co;2-7
Subject(s) - shareholder , white (mutation) , free cash flow , knight , cash flow , cash , investment (military) , economics , tender offer , investment banking , monetary economics , control (management) , business , finance , microeconomics , actuarial science , management , law , political science , corporate governance , biochemistry , chemistry , physics , astronomy , politics , gene
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.