Takeover Threats and Managerial Myopia
Open accessAbstract
This paper examines the familiar argument that takeover pressure can be damaging because it leads managers to sacrifice long-term interests in order to boost current profits. If stockholders are imperfectly informed, temporarily low earnings may cause the stock to become undervalued, increasing the likelihood of a takeover at an unfavorable price; hence the managerial concern with current bottom line. The magnitude of the problem depends on a variety of factors, including the attitudes and beliefs of shareholders, the extent to which corporate raiders have inside information, and the degree to which managers are concerned with retaining control of their firms.
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If well-developed stock markets facilitate takeovers and underperforming managers are fired following takeovers, better stock markets can promote better corporate control by easing takeovers of poorly-managed firms.
“Similarly, if well-developed stock markets facilitate takeovers and underperforming managers are fired following takeovers, better stock markets can promote better corporate control by easing takeovers of poorly-managed firms”
From Finance, Growth, and Inequality (2021) · cites this paper as Stein, 1988
The Introduction (p. 2) describes the argument that takeover threats discipline managers who risk being ousted for failing shareholders. It does not establish that better-developed stock markets ease takeovers of poorly managed firms; the paper also examines potential harms from takeover pressure rather than concluding that easier takeovers improve corporate control. (LLM, conf=0.87)
Experimental — accuracy not yet measuredEntrenchment can also produce beneficial effects by reducing the extent to which the threat of a takeover distorts investments in long-term projects or by enabling managers to extract higher acquisition premia in negotiated transactions.
“To be sure, entrenchment can also produce beneficial effects by reducing the extent to which the threat of a takeover distorts investments in long-term projects [Stein (1988) and Bebchuk and Stole (1993)] or by enabling managers to extract higher acquisition premia in negotiated transactions [Stulz (1988)].”
From What Matters in Corporate Governance? (2009) · cites this paper as Stein (1988)
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Research works printed but not linked: 2
- Greenhouse, Steven. "The Folly of Inflating Quarterly Profits." New York Times (March 2, 1986).
- Scharfstein, David. "The Disciplinary Role of Takeovers." Mimeographed. Cambridge: Massachusetts Inst. Tech., 1985.
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BackgroundFinance, Growth, and Inequality
Levine, R. (2021) · IMF Working Papers · doi:10.5089/9781513583365.001 · Cited by 62 · see citing works
- Authors
- Stein, J. C.
- Corresponding author
- Stein, Jeremy C.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 1988-02
- Volume
- 96
- Issue
- 1
- Pages
- 61-80
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W1984640356
- Cited by
- 1,673
- References
- 0
- Citations by year
- 2026: 73 · 2025: 73 · 2024: 108 · 2023: 82 · 2022: 80 · 2021: 89 · 2020: 67 · 2019: 87 · 2018: 78 · 2017: 86 · 2016: 66 · 2015: 66 · 2014: 71 · 2013: 56 · 2012: 69
- FWCI
- 34.85
- Type
- journal article
- Language
- en
- Open access
- bronze
- doi.org
- Locations
- Journal of Political Economy (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Digital Access to Scholarship at Harvard (DASH) (Harvard University) (submittedVersion, cc-by)
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Merger and Competition Analysis
- Social Sciences › Business, Management and Accounting › Accounting › Auditing, Earnings Management, Governance
- Keywords
- takeover threats, managerial myopia, corporate control, corporate raiders, short-termism, firm value, insider information
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