Corporate Governance
1. Who benefits when firms have takeover defenses? Who is hurt when firms have takeover defenses? In sum, which is greater, the benefits or costs?
When firms have takeover defenses, management and shareholders can benefit. Takeover defenses are not good for the governance system and they helped lead to the demise of disciplinary takeovers. Some acquiring firms attempt to take over a target firm to get rid of bad management and make the organization stronger. If there are takeover defenses in place, high-level management is at less risk of being fired from their job. There is also the golden parachute defense, which is an automatic payment made to management in the case that they do lose their jobs after the company is acquired. Shareholders can also benefit from some takeover defenses. Most poison pills are favorable rights given to shareholders. For example, allowing shareholders from the target firm to buy the stock of the acquiring firm for an extremely discounted price after the firm is acquired. Shareholders can also be hurt by takeover defenses. As mentioned earlier, takeover defenses can hurt the governance system, which ultimately can harm the shareholders. If management is not keeping shareholder interests in mind, and the company has takeover defenses in place then the shareholders are the ones who are affected. Studies have also found that when a firm adopts a defense, their stock prices go down. The benefits of takeover defenses are greater than the hurt. Most firms that have takeover defenses are still acquired in the long run. It can cause the purchase price of the target firm to go up and it still allows the target firm some benefits.
When firms have takeover defenses, management and shareholders can benefit. Takeover defenses are not good for the governance system and they helped lead to the demise of disciplinary takeovers. Some acquiring firms attempt to take over a target firm to get rid of bad management and make the organization stronger. If there are takeover defenses in place, high-level management is at less risk of being fired from their job. There is also the golden parachute defense, which is an automatic payment made to management in the case that they do lose their jobs after the company is acquired. Shareholders can also benefit from some takeover defenses. Most poison pills are favorable rights given to shareholders. For example, allowing shareholders from the target firm to buy the stock of the acquiring firm for an extremely discounted price after the firm is acquired. Shareholders can also be hurt by takeover defenses. As mentioned earlier, takeover defenses can hurt the governance system, which ultimately can harm the shareholders. If management is not keeping shareholder interests in mind, and the company has takeover defenses in place then the shareholders are the ones who are affected. Studies have also found that when a firm adopts a defense, their stock prices go down. The benefits of takeover defenses are greater than the hurt. Most firms that have takeover defenses are still acquired in the long run. It can cause the purchase price of the target firm to go up and it still allows the target firm some benefits.