Shareholder investment horizons and the market for corporate control

Abstract

article in press journal of financial economics 76 (2005) 135–165 www.elsevier.com/locate/econbase shareholder investment horizons and the market for corporate control$ jose´ -miguel gaspara, massimo massab,(cid:1), pedro matosb afinance department, essec business school, av. bernard hirsch 95021 cergy-pontoise, france bfinance department, insead, blvd. de constance, 77300 fontainebleau, france received 15 october 2002; received in revised form 3 december 2003; accepted 5 january 2004 available online 14 november 2004 abstract this paper investigates how the investment horizon of a firm’s institutional shareholders impacts the market for corporate control. we find that target firms with short-term shareholders are more likely to receive an acquisition bid but get lower premiums. this effect is robust and economically significant: targets whose shareholders hold their stocks for less four months, one standard deviation away from the average holding period of 15 months, exhibit a lower premium by 3%. in addition, we find that bidder firms with short-term shareholders experience significantly worse abnormal returns around the merger announcement, as well as higher longrun underperformance. these findings suggest that firms held by short-term investors have a weaker bargaining position in acquisitions. weaker monitoring from short-term shareholders $we thank an anonymous referee, alexandre baptista, jean dermine, bernard dumas, paolo fulghieri, harald hau, pascal maenhout, urs peyer, …

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