TY  - JOUR
AU  - Shleifer,Andrei
AU  - Summers,Lawrence H.
TI  - Breach of Trust in Hostile Takeovers
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2342
PY  - 1989
Y2  - May 1989
UR  - http://www.nber.org/papers/w2342
L1  - http://www.nber.org/papers/w2342.pdf
N1  - Author contact info:
Andrei Shleifer
Department of Economics
Harvard University
Littauer Center M-9
Cambridge, MA 02138
Tel: 617/495-5046
Fax: 617/496-1708
E-Mail: ashleifer@harvard.edu

Lawrence H. Summers
Harvard Kennedy School of Government
79 JFK Street
Cambridge, MA 02138
Tel: 617/495-9322
Fax: 617/495-0436
E-Mail: lhs@harvard.edu
M1  - published as Andrei Shleifer, Lawrence H. Summers. "Breach of Trust in Hostile Takeovers," in Alan J. Auerbach, ed., "Corporate Takeovers: Causes and Consequences" University of Chicago Press (1988)

AB  - The paper questions the common view that share price increases of firms involved in hostile takeovers measure efficiency gains from acquisitions. Even if such gains exist, most of the increase in the combined value of the target and the acquirer is likely to come from stakeholder wealth losses, such as declines in value of subcontractors' firm-specific capital or employees' human capital. The use of event studies to gauge wealth creation in takeovers is unjustified. The paper also suggests a theory of managerial behavior, in which hiring and entrenching trustworthy managers enables shareholders to commit to upholding implicit contracts with stakeholders. Hostile takeovers are an innovation allowing shareholders to renege on such contracts ex post, against managers' will. On this view, shareholder gains are redistributions from stakeholders, and can in the long run result in deterioration of trust necessary for the functioning of the corporation.
ER  -