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Management Practices and Takeover Decisions

Author

Listed:
  • Manthos D. Delis
  • Pantelis Kazakis
  • Constantin Zopounidis
Abstract
Firms with good management practices optimize and synthesize human resources, leadership, and technical and conceptual skills to enhance firm value. In this paper, we examine the role of management practices in merger and acquisition (M&A) decisions. M&A decisions are among the most important corporate decisions, on which firms spend a lot of resources and managerial qualities. We estimate management practices as a latent variable using a structural equation production model and Bayesian techniques. The key advantage of the Bayesian approach is the use of informative priors from survey-based management estimation methods, which are however available for a limited number of firms. Subsequently, we examine the effect of management practices on takeover events. We first show that management practices, on average, increase the probability of M&A deals. However, we also uncover a nonlinear U-shaped effect, which is consistent with the theoretical premise that poor management leads to many value-decreasing M&A deals, whereas good management leads to many value-increasing M&A deals.

Suggested Citation

  • Manthos D. Delis & Pantelis Kazakis & Constantin Zopounidis, 2021. "Management Practices and Takeover Decisions," Working Papers 2021_10, Business School - Economics, University of Glasgow.
    • Handle: RePEc:gla:glaewp:2021_10
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    File URL: https://www.gla.ac.uk/media/Media_797967_smxx.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    OR in corporate finance; Management practices; Bayesian methods; Mergers and acquisitions; Nonlinear models;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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