Discipline or Disruption? Stakeholder Relationships and the Effect of Takeover Threat

Management Science, Forthcoming

62 Pages Posted: 24 Jan 2010 Last revised: 10 Aug 2016

See all articles by Ling Cen

Ling Cen

The Chinese University of Hong Kong

Sudipto Dasgupta

Chinese University of Hong Kong, ABFER, CEPR, and ECGI

Rik Sen

University of New South Wales (UNSW)

Date Written: May 10, 2015

Abstract

While a sizable literature suggests that firms benefit from vulnerability to takeovers because it reduces agency problems, the threat of takeovers can also impose ex ante costs on firms by adversely affecting relationships with important stakeholders, such as major customers. We find that when firms have corporate customers as important stakeholders, an exogenous reduction in the threat of takeovers increases their ability to attract new customers and strengthens their relationships with existing customers, resulting in improvement in operating performance. The positive effect on operating performance is greater for suppliers that are likely to offer unique and durable products to their customers. Our results suggest a beneficial aspect of protection from takeovers when stakeholder relationships are important.

Keywords: takeovers, corporate governance, product market relationships, Business Combination Laws

JEL Classification: G34, G38, L14

Suggested Citation

Cen, Ling and Dasgupta, Sudipto and Sen, Rik, Discipline or Disruption? Stakeholder Relationships and the Effect of Takeover Threat (May 10, 2015). Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1540346 or http://dx.doi.org/10.2139/ssrn.1540346

Ling Cen

The Chinese University of Hong Kong ( email )

CYT Building
Sha Tin
Hong Kong, Hong Kong
Hong Kong

HOME PAGE: http:///sites.google.com/site/cenling/

Sudipto Dasgupta

Chinese University of Hong Kong, ABFER, CEPR, and ECGI ( email )

CUHK, Cheng Yu Tung Building, Room 1224
Shatin, NT
Hong Kong
Hong Kong

Rik Sen (Contact Author)

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

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