Many financial firms have devised defences that make it more difficult or costly for other firms to take them over. How might such defences affect the firm’s agency problems? Are managers of firms with formidable takeover defences more or less likely to act in the shareholders’ interests rather than their own? What would you expect to happen to the share price when management proposes to institute such defences?
No More Worries!
Paper Formatting
- Double or single-spaced
- 1-inch margin
- 12 Font Arial or Times New Roman
- 300 words per page
No Lateness!
Our orders are delivered strictly on time without delay
AEW Guarantees
- Free Unlimited revisions
- Guaranteed Privacy
- Money Return guarantee
- Plagiarism Free Writing
Devised defences for management.
Full Answer Section
As a result, shareholders of firms with formidable takeover defenses may be more likely to experience financial losses.
When management proposes to institute takeover defenses, shareholders are likely to react negatively. This is because shareholders know that takeover defenses can be used by managers to entrench themselves in power and to act in their own interests, rather than the interests of shareholders.
A study by the National Bureau of Economic Research found that the share price of firms that adopt takeover defenses typically declines by about 3%. This suggests that shareholders view takeover defenses as a negative development.
Overall, takeover defenses can exacerbate agency problems and lead to managers acting in their own interests, rather than the interests of shareholders. Shareholders should be aware of the potential risks of takeover defenses and should carefully evaluate any proposals by management to institute such defenses.
It is important to note that not all takeover defenses are created equal. Some takeover defenses, such as staggered boards and supermajority voting requirements, are more effective at preventing hostile takeovers than others. However, even the most effective takeover defenses can be overcome by a determined bidder.
Ultimately, the decision of whether or not to implement takeover defenses is a complex one that should be made on a case-by-case basis. Firms should carefully consider the potential benefits and drawbacks of takeover defenses before making a decision.
Sample Answer
Takeover defenses can have a significant impact on agency problems. When a firm is difficult or costly to take over, managers have more power and are less accountable to shareholders. This can lead to managers acting in their own interests, rather than the interests of shareholders.
For example, managers of firms with formidable takeover defenses may be more likely to:
- Pay themselves higher salaries and bonuses.
- Perk themselves up with lavish perks and benefits.
- Diversify into unrelated businesses that are less profitable or more risky.
- Resist changes that would benefit shareholders, such as selling the company or merging with another company.
12% Discount
- Research Paper Writing
- Essay Writing
- Dissertation Writing
- Thesis Writing
Why Choose Us
- Money Return guarantee
- Guaranteed Privacy
- Written by Professionals
- Paper Written from Scratch
- Timely Deliveries
- Free Amendments