Journal of Financial Economics Vol. 76 No. 1 2005
Shareholder investment horizons and the market for corporate control
Abstract
This paper investigates how the investment horizon of a firm's institutional shareholders impacts the market for corporate control. We find that target firms with short-term shareholders are more likely to receive an acquisition bid but get lower premiums. This effect is robust and economically significant: Targets whose shareholders hold their stocks for less four months, one standard deviation away from the average holding period of 15 months, exhibit a lower premium by 3%. In addition, we find that bidder firms with short-term shareholders experience significantly worse abnormal returns around the merger announcement, as well as higher long-run underperformance. These findings suggest that firms held by short-term investors have a weaker bargaining position in acquisitions. Weaker monitoring from short-term shareholders could allow managers to proceed with value-reducing acquisitions or to bargain for personal benefits (e.g., job security, empire building) at the expense of shareholder returns.
- DOI
- 10.1016/j.jfineco.2004.10.002
- Volume
- 76
- Issue
- 1
- Pages
- 135-165
- Language
- en
- Sources
- crossref bibtex:phds-export.bib openalex