TOP MANAGERIAL PRESTIGE, POWER AND TENDER OFFER RESPONSE - A STUDY OFELITE SOCIAL NETWORKS AND TARGET FIRM COOPERATION DURING TAKEOVERS

In this paper we explore the following research question: When faced w ith a tender offer, why do some firms resist and others cooperate? In the past, researchers have suggested that the manner in which firms re spond to takeover attempts may be, in part, a function of managers' pe rsonal motivations. We contribute to this line of research by question ing whether other factors might be involved. Specifically, we examine whether cooperation may be a function of the friendliness of the biddi ng company and the social networks shared by executives in the two fir ms (i.e., bidder and target). We examine how the power and connections of managers affect their responses to tender offers. Our results sugg est that these factors do indeed play a role. We found, for example, t hat target managers are more likely to cooperate under two conditions: (1) if they have less prestigious connections than managers in the bi dding firm, and (2) if the target and bidding firms' share numerous ti es to the same prestigious networks. In contrast, we found that target managers are more likely to resist a bidder's advances if: (1) the ma nagers in both firms are poorly connected, or (2) the targets' manager s hold more prestigious connections relative to the bidders. Together these findings suggest that cooperation and resistance may be a functi on of the social networks and power relationships that exist between a nd within firms. We discuss our findings within the framework of numer ous organizational theories such as social class and social network th eory, agency theory, and resource dependence. Although each of these p erspectives suggests somewhat different results, we propose a reconcil iation of these various perspectives. Specifically, we suggest that th e variables of managerial power and connections may have different eff ects depending on whether we are observing firms before or after tende r offers are made. It may be, for instance, that before a takeover off er is received, the power and prestige of target managers is associate d with adoption of anti-takeover defenses (i.e., defenses designed to thwart takeover attempts). In fact, this finding has already been well documented in the literature. On the other hand, our findings suggest that after an offer is received, these same factors of prestige and p ower appear to be associated with resistance. Finally, our results cal l into question previous views that corporate takeovers are a mechanis m for disciplining or ridding the company of incompetent managers. Ins tead, our findings suggest that the nature of the takeover process (i. e., cooperative versus resistant) may do little more than perpetuate e xisting social structures. Powerful and prestigious managers may not s uffer the same negative effects of takeovers as their less prestigious and less powerful counterparts.