Target-management-involved buyouts: impact on takeover competition, litigation risk, and shareholder returns

We examine the impact of target management involvement as bidders in a sample of completed going‐private buyouts. Announcement‐period and long‐run target shareholder returns do not appear to be lower in management‐involved deals. We attempt to identify disciplining mechanisms in the takeover process that can explain this result. We find that target shareholder lawsuits are more likely when management is involved, and litigation risk appears to positively affect target returns. We also study a sample of withdrawn buyout deals and find that a significant number of management bids are unsuccessful, further suggesting that safeguards exist in management‐involved deals.