Corporate Performance, Corporate Takeovers, and Management Turnover




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    • Kenneth J. Martin is at the University of Iowa. Professor John J. McConnell is at the Krannert Graduate School of Management of Purdue University. We thank Michael Bradley and E. Han Kim for providing us with their tender offer database. Martin acknowledges financial support received from the Richard D. Irwin Foundation. We also thank Claudio Loderer for many helpful suggestions and comments and Steve Buser for his help in moving the paper toward completion. The paper has benefited from presentations at Boston College and Kansas University.


This paper examines the hypothesis that an important role of corporate takeovers is to discipline the top managers of poorly performing target firms. We document that the turnover rate for the top manager of target firms in tender offer-takeovers significantly increases following completion of the takeover and that prior to the takeover these firms were significantly under-performing other firms in their industry as well as other target firms which had no post-takeover change in the top executive. We interpret the results to indicate that the takeover market plays an important role in controlling the nonvalue maximizing behavior of top corporate managers.