The effect of international takeover laws on corporate resource adjustments: Market discipline and/or managerial myopia?

James N. Cannon, Bingbing Hu, Jay Junghun Lee*, Daoguang Yang

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    17 Citations (Scopus)


    Practitioners often claim that takeover pressure induces managerial myopia (short-termism), but academic research provides limited empirical evidence supporting this assertion. Our study fills this void by investigating how takeover threat influences managers’ resource-adjustment decisions. Specifically, we exploit the staggered enactments of merger and acquisition laws across countries as exogenous shocks that facilitate takeover transactions and increase takeover threat. While we find some evidence that takeover laws deter managers from acquiring and retaining excess resources (market discipline), we find more prevailing evidence that such law enactments induce managers to pursue short-term profits through underinvesting in resources meant to create long-term value (managerial myopia). Cross-country analyses reveal that the effect of takeover legislation on resource adjustments is concentrated in countries with weak investor protection and in countries with short-term-oriented culture. Consistent with managerial myopia, we also find that corporate resources contribute less to the long-term value in the post-enactment period, and that firm profitability improves immediately after the enactment, but then gradually reverts to the pre-enactment level. Collectively, our evidence suggests that policymakers, corporate boards, investors, and researchers, when assessing the net effects of takeover threats, should consider both the downside of inciting myopic behavior and the upside of tightening managerial discipline.

    Original languageEnglish
    Pages (from-to)1443-1477
    Number of pages35
    JournalJournal of International Business Studies
    Issue number9
    Early online date5 Nov 2020
    Publication statusPublished - Dec 2020

    Scopus Subject Areas

    • Business and International Management
    • Business, Management and Accounting(all)
    • Economics and Econometrics
    • Strategy and Management
    • Management of Technology and Innovation

    User-Defined Keywords

    • cost asymmetry
    • managerial myopia
    • market discipline
    • resource adjustments
    • short-termism
    • takeover laws


    Dive into the research topics of 'The effect of international takeover laws on corporate resource adjustments: Market discipline and/or managerial myopia?'. Together they form a unique fingerprint.

    Cite this