TY - JOUR
T1 - Corporate complexity, managerial myopia, and hostile takeover exposure
T2 - Evidence from textual analysis
AU - Chatjuthamard, Pattanaporn
AU - Ongsakul, Viput
AU - Jiraporn, Pornsit
N1 - Funding Information:
The research was funded by The Center of Excellence (CE) in Management Research for Corporate Governance and Behavioral Finance through outside-Sasin research donations and by Sasin School of Management through the SASIN Major Grant for a research program. Part of this research was carried out while Pornsit Jiraporn served as Visiting Professor of Finance at Sasin School of Management, Chulalongkorn University in Bangkok, Thailand.
Funding Information:
The research was funded by The Center of Excellence (CE) in Management Research for Corporate Governance and Behavioral Finance through outside-Sasin research donations and by Sasin School of Management through the SASIN Major Grant for a research program. Part of this research was carried out while Pornsit Jiraporn served as Visiting Professor of Finance at Sasin School of Management, Chulalongkorn University in Bangkok, Thailand.
Publisher Copyright:
© 2021 Elsevier B.V.
PY - 2022/3
Y1 - 2022/3
N2 - Exploiting a novel measure of firm complexity based on textual analysis (Loughran and McDonald, 2020), we explore the effect of hostile takeover exposure on firm complexity. Our results demonstrate that more takeover vulnerability leads to less complex firms. Hostile takeover threats diminish managers’ job security and thus exacerbates managerial myopia. Short-sighted managers focus on short-term investments at the expense of more complex, long-term, projects, resulting in lower corporate complexity. Our measure of takeover susceptibility is principally based on state legislation, which is plausibly exogenous. Therefore, our results are more likely to reflect causality than merely an association. Further analysis corroborates the results including propensity score matching, entropy balancing, an instrumental-variable analysis, and using Oster's (2017) method for testing coefficient stability.
AB - Exploiting a novel measure of firm complexity based on textual analysis (Loughran and McDonald, 2020), we explore the effect of hostile takeover exposure on firm complexity. Our results demonstrate that more takeover vulnerability leads to less complex firms. Hostile takeover threats diminish managers’ job security and thus exacerbates managerial myopia. Short-sighted managers focus on short-term investments at the expense of more complex, long-term, projects, resulting in lower corporate complexity. Our measure of takeover susceptibility is principally based on state legislation, which is plausibly exogenous. Therefore, our results are more likely to reflect causality than merely an association. Further analysis corroborates the results including propensity score matching, entropy balancing, an instrumental-variable analysis, and using Oster's (2017) method for testing coefficient stability.
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U2 - 10.1016/j.jbef.2021.100601
DO - 10.1016/j.jbef.2021.100601
M3 - Article
AN - SCOPUS:85120825811
VL - 33
JO - Journal of Behavioral and Experimental Finance
JF - Journal of Behavioral and Experimental Finance
SN - 2214-6350
M1 - 100601
ER -