Hostile Takeovers Fail to Make Firms More Efficient

Article excerpt

The "red in tooth and claw" world of hostile takeovers does not create fitter firms, according to economists.

Despite the apparent logic of more efficient firms devouring their less agile rivals, academics at the Royal Economic Society's annual conference in the Midlands claimed there is little evidence of subsequent gains in productivity.

In fact, they said, hostile takeovers typically led to reductions in output and employment, mainly through divestment.

The four authors of the paper, Do Hostile Mergers Destroy Jobs? said: "The hostile takeover is the most controversial element of the Anglo-American system of corporate governance.

"Its proponents see it as the ultimate sanction on managerial under-performance - the threat to replace one managerial team with another dedicated to raising the return on corporate assets.

"Opponents argue hostile takeovers are costly, frequently mis-directed and the cause of systemic problems in the corporate sector, including, perhaps, short-termism. "

The conference at Warwick University heard yesterday that a survey of hostile takeovers showed there was little evidence of productivity or efficiency gains following acquisitions.

When the researchers looked at overall employment trends within 217 acquiring firms, they found evidence of job losses - particularly among hostile victors. …