Corporate governance and hostile takeovers

In the preceding paper Shivdasani (1993) estimates equations predicting the probability of a hostile takeover as a function of governance characteristics. He finds that additional outside directorships by board members decrease the probability of a takeover. Ownership by management and by affiliated blockholders also decreases the probability of a takeover, while ownership by unaffiliated blockholders increases this probability. These results suggest that corporate governance affects takeover probabilities through two channels: (1) suboptimal contracting within a firm can lead to poor corporate performance and hence affect the desirability of a takeover, and (2) governance structures can alter the cost of a takeover and hence affect the takeover process.