External corporate governance and strategic investment behaviors of target CEOs

Mariano L.M. Heyden, Nikolaos Kavadis, Qiomy Neuman

Research output: Contribution to journalArticleResearchpeer-review

17 Citations (Scopus)

Abstract

Hostile takeover attempts are considered a key external governance mechanism aimed at addressing perceived managerial underperformance in a target firm. Studies show that target chief executive officers (CEOs) are usually dismissed shortly after a takeover attempt, regardless of whether the bidder actually completes the acquisition. Yet, little is known about the investment behaviors of target CEOs who actually retain their positions in the wake of an unsuccessful hostile takeover attempt. Engaging with this underexplored governance context, we advance a behaviorally informed model of CEO investment behaviors in response to external governance as a function of the negative performance feedback event of the takeover attempt and the timing of the market’s attempt in terms of the stage of the target CEO’s tenure. Based on a matched-pair study of 71 failed takeover attempts from 1995 to 2006, we find evidence of a nonlinear relation between target CEO tenure and degree of uncertainty of expected returns in subsequent strategic investments in the wake of a failed hostile takeover attempt. We discuss the implications for research on external governance, behavioral agency, and executives’ influences on firm processes and outcomes.

Original languageEnglish
Pages (from-to)2065-2089
Number of pages25
JournalJournal of Management
Volume43
Issue number7
DOIs
Publication statusPublished - Sept 2017
Externally publishedYes

Keywords

  • CAPEX
  • CEO tenure
  • external corporate governance
  • hostile takeovers
  • investment behaviors
  • matched-pair
  • R&D

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