This paper examines the familiar argument that takeover pressure can be damaging because i t leads managers to sacrifice long-term interests in order to boost c urrent profits. If stockholders are imperfectly informed, temporarily low earnings may cause the stock to become undervalued, increasing t he likelihood of a takeover at an unfavorable price; hence the manage rial concern with current bottom line. The magnitude of the problem d epends on a variety of factors, including the attitudes and beliefs o f shareholders, the extent to which corporate raiders have inside inf ormation, and the degree to which managers are concerned with retaini ng control of their firms. Copyright 1988 by University of Chicago Press.

[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.]