Academic journal article Canadian Journal of Administrative Sciences

Canadian Takeover Announcements and the Job Security of Top Managers

Academic journal article Canadian Journal of Administrative Sciences

Canadian Takeover Announcements and the Job Security of Top Managers

Article excerpt

Abstract

This study measures the turnover rate of top managers (Chief Executive Officers or Presidents) in acquisition targets following the public announcements of takeovers in Canada. Turnover rates following the announcements of completed and unsuccessful takeover attempts did not differ from each other but were higher than the norm for CEOs from a control group of nontarget firms. The turnover rate was particularly high for widely-held firms and negatively correlated with the preannouncement performance of the targets. Overall, results suggest that a major objective of takeovers in Canada is to reduce management failings, inefficiency, and agency costs. Copyright © 2007 ASAC. Published by John Wiley & Sons, Ltd.

JEL Classifications: G300, G340

Keywords: Corporate takeovers, Managerial turnover rate, Corporate governance, Market performance

Résumé

La présente étude mesure le taux de roulement des cadres supérieurs (présidents-directeurs généraux ou présidents) dans les entreprises canadiennes devenues cibles d'acquisition après une annonce publique de prises de contrôle. L'étude montre que le taux de roulement des cadres supérieurs après une tentative d'acquisition fructueuse n 'est pas différent du taux de roulement après une tentative d'acquisition infructueuse. Cependant, les deux taux de roulement sont supérieurs à la norme pour les présidents-directeurs généraux d'un groupe témoin d'entreprises non cible. Le taux de roulement est particulièrement élevé dans les entreprises à grand nombre d'actionnaires, et est en corrélation négative avec la performance de ces entreprises avant l'annonce de la tentative d'acquisition. Au total, notre recherche révèle qu'au Canada, les prises de contrôle sont prioritairement destinées à réduire l'inefficacité, les erreurs, et les coûts des cadres supérieurs. Copyright © 2007 ASAC. Published by John Wiley & Sons, Ltd.

Mots-clés : Prises de contrôle, taux de roulement des cadres supérieurs, gouvernance d'entreprise, rendement du marché

(ProQuest: ... denotes formulae omitted.)

The corporate takeover market serves a disciplinary and efficiency-enhancing role. Fama (1980) and Jensen and Ruback (1983) propose that when internal organizational control mechanisms fail, the external market for corporate control acts to reduce non value-maximizing behaviour. We investigate the disciplinary nature of takeovers by examining the relationship between Canadian takeover announcements and the turnover rate of Chief Executive Officers (CEO) or Presidents.

Three areas of investigation form the core of our study. Fkst, we investigate the disciplinary role of the announcements of completed, unsuccessful, and partial takeover attempts. An unsuccessful attempt occurs when a takeover is announced but the bidder fails to complete the transaction. A partial takeover occurs when the buyer acquires a significant portion, but less than 50%, of a target's common shares and total ownership of the buyer remains 50% or less.

Theoretically, the mechanisms of managerial turnover in completed, unsuccessful, and partial takeovers are different. In a completed transaction, the target firm's top manager is replaced by the bidder's management. In that case, the turnover is the result of an external control mechanism. In unsuccessful and partial takeovers, the target firm's top manager is replaced by the firm's own board of directors. The turnover is then the result of internal control mechanisms set off by external pressures. In addition, Hartzell, Ofek, and Yermack (2004), Lubatkin, Schweiger, and Weber (1999), and Walsh and Kosnik (1993) argued that top managers sometimes voluntarily leave their firms after successful transactions due to cultural differences and the perception that thek autonomy is being undermined. Therefore, we expect the turnover rate for completed transactions to be higher than the turnover rate for unsuccessful attempts.

Though Agrawal and Walkling (1994) have approached this topic, our study is different in three ways. …

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