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Decoupling management inefficiency: Myopia, hyperopia and takeover likelihood

Tunyi Tunyi Abongeh Orcid Logo, Collins G. Ntim, Jo Danbolt Orcid Logo

International Review of Financial Analysis, Volume: 62, Pages: 1 - 20

Swansea University Author: Tunyi Tunyi Abongeh Orcid Logo

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DOI (Published version): 10.1016/j.irfa.2019.01.004

Abstract

Using combinations of accounting and stock market performance measures, we advance a comprehensive multidimensional framework for modelling management performance. This framework proposes “poor” management, “myopia”, “hyperopia” and “efficient” management, as four distinct attributes of performance....

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Published in: International Review of Financial Analysis
ISSN: 1057-5219 1873-8079
Published: Elsevier BV 2019
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URI: https://cronfa.swan.ac.uk/Record/cronfa65108
Abstract: Using combinations of accounting and stock market performance measures, we advance a comprehensive multidimensional framework for modelling management performance. This framework proposes “poor” management, “myopia”, “hyperopia” and “efficient” management, as four distinct attributes of performance. We show that these new attributes align with, and extend, existing frameworks for modelling management short-termism. We apply this framework to test the management inefficiency hypothesis using UK data over the period 1988 to 2017. We find that takeover likelihood increases with “poor” management and “myopia”, but declines with “hyperopia” and “efficient” management. Our results suggest that managers who focus on sustaining long-term shareholders' value, even at the expense of current profitability, are less likely to be disciplined through takeovers. By contrast, managers who pursue profitability at the expense of long-term shareholder value creation are more likely to face takeovers. Finally, we document the role of bidders as enforcers of market discipline.
Keywords: Hyperopia, Inefficient management hypothesis, Management performance, Myopia, Takeovers
College: Faculty of Humanities and Social Sciences
Start Page: 1
End Page: 20

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