Takeover Premiums and Family Blockholders

Abstract

Blockholders impact strategic firm decisions because they are better at monitoring managers than dispersed shareholder groups. Nevertheless, we do not sufficiently understand how preferences of different blockholder types impact strategic firm decisions. We discuss this in the context of takeover premiums offered for publicly listed firms. Prior studies have argued that managers are often tempted to offer excessively high premiums. Consistently, blockholders might better control managers and ensure lower premiums. To better understand the impact of blockholder preferences, we focus on the special case of family firms. Specifically, drawing on the behavioral agency model, we hypothesize that bidders with family blockholders offer lower premiums than bidders with other blockholders or bidders without blockholders. Our empirical results support our hypotheses based on a sample of 149 takeover offers.