Hostile takeover threats, managerial myopia and asset redeployability

Abstract

Purpose

Exploiting two novel measures of takeover vulnerability and asset redeployability, this paper aims to investigate the effect of the takeover market on redeployable assets. Redeployable assets are those with alternative uses. Asset redeployability is a crucial concept in the literature on investment irreversibility.

Design/methodology/approach

In addition to the standard regression analysis, the authors execute several robustness checks: propensity score matching, entropy balancing, instrumental-variable analysis and generalized method of moment dynamic panel data analysis.

Findings

The authors’ results reveal that more takeover threats reduce asset redeployability significantly, corroborating the managerial myopia hypothesis. Hostile takeover threats reduce managers’ job security and thus induce them to myopically focus on the current utilization of assets in the short run, rather than how they may be deployed in the long run, resulting in less asset redeployability.

Originality/value

To the best of the authors’ knowledge, this study is the first to investigate the effect of takeover threats on asset redeployability. Because the authors’ measure of takeover vulnerability is principally based on the staggered passage of state legislations, which are plausibly exogenous, the authors’ results likely reflect causality, rather than merely an association.

Citation

Chatjuthamard, P., Boonlert-U-Thai, K., Jiraporn, P., Uyar, A. and Kilic, M. (2023), "Hostile takeover threats, managerial myopia and asset redeployability", Corporate Governance, Vol. 23 No. 1, pp. 169-188. https://doi.org/10.1108/CG-11-2021-0402