Monitoring and the acquiring firm reaction to bad takeover bids

Abstract

This study investigates variables that explain why bidding firms raise their offer price following a negative capital market reaction to a takeover announcement. We find that whilst an increasing number of blockholders restrains the pursuit of unprofitable takeovers, greater institutional ownership and takeover hostility increases the likelihood a bidder will raise their offer price. Multiple bidders and board independence are unrelated to an increase in takeover price. Inconsistent with agency theory, management ownership and free cash flow do not explain bidder actions.