1 Lethality of Managerial Resistance in Hostile Bids 1

We empirically investigate ‘hostile’ takeover bids by specifically focusing on whether or not the resistance strategy included retaliation with a potentially lethal operational and/or financial transaction intended to frustrate the takeover bid and make it likely to fail. More than 40% of hostile bids in our sample involve such potentially lethal “frustrating” actions. We find that a frustrating action is causally linked to worse abnormal stockholder wealth and greater likelihood of the CEO being fired subsequent to the bid. Moreover, relative to non-lethal managerial resistance, a frustrating action is significantly related to commonly used proxies for lower target-firm undervaluation, lower managerial quality, and tighter managerial control. Our empirical findings are consistent with potentially lethal resistance strategies being motivated more by managerial entrenchment considerations than by the objective of maximizing the potential for price improvement for shareholders. JEL classification: G34; G38