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Do Bad Bidders Get Fired?

bad bidders fired
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Do Bad Bidders Get Fired?

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Mengxin Zhao and Kenneth Lehn* McCallum Graduate School of Business, Bentley College, Waltham, MA 02452 Joseph M. Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, PA 15260 June 2003 Abstract Previous research has documented that the external control market disciplines managers who make value- reducing acquisitions. This paper finds that internal control mechanisms also discipline managers who make value-destroying acquisitions. We find a strong inverse relation between the returns to acquiring firms and the likelihood that their CEOs are subsequently fired. No significant relation exists between the probability that “bad bidders” get fired and various corporate governance characteristics, including the size and structure of boards. The results indicate that internal governance mechanisms discipline managers who stray from value-maximization. It also suggests that firms “choose” these mechanisms optimally such that no empirical relation exists between governance s

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