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Managerial compensation and shareholder wealth consequences of "White Knight" behavior
Abstract
This dissertation investigates the manager motivations involved in the participation of White Knights (WKs) in corporate control contests. The three features of WK bids, viz. (i) it is a subsequent bid, (ii) it is a friendly bid and (iii) it follows a hostile bid, combine uniquely to provide the context for varying bidding motivations of WK managers relative to the hostile bidders (HBs). An analysis of the sequence of bidding in these contests reveals a category called HHW WKs who make their bid after two consecutive bids by the HB, and tend to take relatively more time in doing so. The non-HHW WKs make their bid in relative haste after the first HB bid. Overpayments by WKs, for which statistical evidence is documented, are observed to be much more pervasive, and of considerably greater economic magnitudes, for non-HHW WKs. The managers of HHW WKs are thus more likely to be firm value maximizers; any observed overpayments could be the result of hubris or the winner's curse. However, the managers of non-HHW WKs may not be maximizing firm value through their bids, implying an absence of proper ex-ante incentive alignments for minimizing agency conflicts. These managers may thus have a lower proportion of annual expected income from their separate holdings of stock and stock options relative to their annual cash compensation (defined as variables COM and OP respectively). An examination of the structure of compensation packages of managers reveals that COM is lower for non-HHW WKs as compared to HHW WKs. OP is unable to directly distinguish between non-HHW WKs and HHW WKs. Yet, OP (as well as COM) are lower for non-HHW WKs relative to HBs. Further, neither COM nor OP is able to differentiate between HHW WKs and HBs. Thus, if HBs are considered as firm value maximizers, then HHW WKs are likely to be governed by similar motivations. In contrast, size maximization goals leading to higher proportions of cash compensation for their managers may dominate the acquisition activity of non-HHW WKs. External monitoring to limit agency conflicts, as proxied by relative debt levels, is also lower for non-HHW WKs.
Subject Area
Finance|Accounting|Management
Recommended Citation
Banerjee, Ajeyo, "Managerial compensation and shareholder wealth consequences of "White Knight" behavior" (1991). Doctoral Dissertations Available from Proquest. AAI9132815.
https://scholarworks.umass.edu/dissertations/AAI9132815