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Why do Shareholders Allow Their Managers to be Gatekeepers in Corporate Control Contests? *
Author(s) -
Park Kyung Suh
Publication year - 2008
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 1226-1165
DOI - 10.1111/j.2041-6156.2008.tb00003.x
Subject(s) - contest , shareholder , tender offer , control (management) , incentive , business , microeconomics , welfare , value (mathematics) , set (abstract data type) , market for corporate control , cheap talk , accounting , economics , corporate governance , finance , market economy , management , law , programming language , machine learning , political science , computer science
This paper formulates a theoretical model to explain why target shareholders under corporate control contests allow their managers to play the role of a gatekeeper despite the conflicting incentive of the managers to resist takeover attempts that might increase firm value. The paper claims that sometimes the existence of a manager with a conflicting goal can contribute to enhancing the welfare of his shareholders under a corporate control contest where bidders have the choice of takeover methods. We set up a game‐theoretical model and derive a separating equilibrium where bidders with higher synergy prefer a tender offer to a merger, and the bidders are forced to pay higher takeover premium in a hostile tender offer due to the existence of informed target managers who can make counteroffers under a merger deal.