Antitakeover Measures, Golden Parachutes, and Target Firm Shareholder Welfare

Abstract

Adopting antitakeover measures can enable the shareholders of a target firm to increase their share of any synergy gains expected to result from combining their firm with a bidder. Adopting such measures enhances the bargaining power of the target's manager, who will be a tougher bargainer than the nonmanagerial shareholders will, owing to his expected loss of his job following the target's acquisition. If the manager's expected loss of utility is very large, target firm shareholders may maximize their takeover-related gain by both adopting antitakeover measures and awarding the manager a golden parachute of the optimal size.

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