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Managerial Motives and Value Erosion

Managerial motives like growth for growth's sake, egotism, and anti-takeover tactics can erode value creation as firms pursue diversification initiatives not focused on enhancing value but rather on expanding managerial power, recognition, and protecting wealth and power from hostile takeovers through mechanisms like greenmail, golden parachutes, and poison pills.

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DJUNAH MAE ARELLANO
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151 views1 page

Managerial Motives and Value Erosion

Managerial motives like growth for growth's sake, egotism, and anti-takeover tactics can erode value creation as firms pursue diversification initiatives not focused on enhancing value but rather on expanding managerial power, recognition, and protecting wealth and power from hostile takeovers through mechanisms like greenmail, golden parachutes, and poison pills.

Uploaded by

DJUNAH MAE ARELLANO
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

How Managerial Motives Can Erode Value Creation

Managerial motives can erode value creation as firms pursue diversification


initiatives. These include growth for growth's sake, egotism and anti-takeover tactics.

I. Growth for growth’s sake


- managers may act for their own self interest
- enjoying higher recognition due to major acquisition
- higher intensive in larger firms
- thus value eroding rather than enhancing

II. Egotism
- lead to great length to win

III. Anti-takeover
- define as managers actions to avoid losing wealth or power as a result of a hostile
takeover.

Three types of anti-takeover:

1. Greenmail- a payment by a firm to a hostile party for the firm's share at premium,
made when the firm's management feels that the hostile party is about to make a
tender offer.
2. Golden Parachute - a prearranged contract with managers specifying that, in the
event of hostile takeover, the target firm's managers will be paid a significant
severance package.
3. Poison Pill- used by a company to give shareholders certain rights in the event of
takeover by another firm.

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