The Nature of Discipline by Corporate Takeovers


  • Omesh Kini,

  • William Kracaw,

  • Shehzad Mian

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    • Kini is from the Robinson College of Business at Georgia State University, Kracaw is from the Smeal College of Business at Penn State University, and Mian is from the Goizueta Business School at Emory University. We have received valuable comments from Laura Field, Richard Green (the editor), Jonathan Karpoff, Harold Mulherin, Kevin Murphy, and an anonymous referee. We thank Yanjing Chen, Yongduk Pak, and Husayn Shahrur for capable research assistance. We would also like to thank Ron Harris, Anand Venkateswaran, and Xaiolan Wang for excellent computational assistance. The usual disclaimer applies.


This paper provides a comprehensive examination of the disciplinary role of the corporate takeover market using a sample of U.S. target firms over the period 1979 to 1998. The time period spanned allows a broader study not only of the disciplinary role of the takeover market in general, but also of the interaction between the takeover market and alternative governance mechanisms during the 1980s and 1990s. Overall, our evidence is consistent with the view of the corporate takeover market as a “court of last resort,” that is, it is an external source of discipline that intercedes when internal control mechanisms are relatively weak or ineffective.