Hostile takeover threats, managerial myopia and asset redeployability
Year: 2022
Type: article
Abstract: Purpose - Exploiting two novel measures of takeover vulnerability and asset redeployability, we investigate the effect of the takeover market on redeployable assets. Redeployable assets are those with alternative uses. Asset redeployability is a crucial concept in the literature on investment irreversibility. Design/Methodology/Approach - In addition to the standard regression analysis, we execute several robustness checks: propensity score matching, entropy balancing, instrumental-variable analysis, and GMM dynamic panel data analysis. Findings - Our results reveal that more takeover threats reduce asset redeployability significantly, corroborating the managerial myopia hypothesis. Hostile takeover threats reduce managers' job security and thus induce them to myopically focus on the current utilization of assets in the short run, rather than how they may be deployed in the long run, resulting in less asset redeployability. Originality - Our study is the first to investigate the effect of takeover threats on asset redeployability. Because our measure of takeover vulnerability is principally based on the staggered passage of state legislations, which are plausibly exogenous, our results likely reflect causality, rather than merely an association.
Source: Corporate Governance
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4292088960