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M anagerial R eaction to T akeover B ids : A T heory of S trategic R esistance
Author(s) -
De Sankar,
Knez Peter J.
Publication year - 1993
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.1993.00567.x
Subject(s) - reservation , shareholder , business , microeconomics , computer science , economics , computer network , finance , corporate governance
This paper develops a theory to explain the frequently observed resistance offered by the management of target firms to high‐premium takeover bids. Contrary to the popular perception of managerial entrenchment at the expense of the shareholders' interests, such resistance may be strategically designed to increase shareholder wealth by threatening to initiate an informal auction process fur the target involving other potential bidders. Remarkably, this strategy can be effective even when it is common knowledge that the other bidders do not have a higher reservation price for the target. The analysis also offers insights into division of takeover gains and several other takeover‐related issues.