Failed takeover attempts, corporate governance and refocusing

Authors

  • Sayan Chatterjee,

    Corresponding author
    1. Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio, U.S.A.
    • Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, Cleveland, OH 44106-7235, U.S.A.
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  • Jeffrey S. Harrison,

    1. School of Hotel Administration, Cornell University, Ithaca, New York, U.S.A.
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  • Donald D. Bergh

    1. Smeal College of Business Administration, Pennsylvania State University, University Park, Pennsylvania, U.S.A.
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Abstract

Hostile takeover attempts oftentimes signal that a target firm has an over-diversified and ineffective corporate strategy. What does this signal mean when takeover attempts fail? Drawing from agency theory, we argue that target firms managed by independent directory boards are likely to ignore the takeover attempt and not refocus their firms' strategy. Conversely, target firms managed by nonindependent boards are more likely to view the failed takeover attempt as a ‘wake-up call’ and will refocus their firms' strategy so as to preserve the firm's survival. These arguments are tested using a sample of 76 firms that were targets of failed hostile takeover attempts. Logistic regression analyses confirm the predictions. This study suggests that in the aftermath of a failed takeover attempt board of director characteristics can help predict changes in corporate strategies. Copyright © 2002 John Wiley & Sons, Ltd.

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