Shark Repellents and Managerial Myopia: An Empirical Test

Since the proxy fights of the 1950s, commentators have debated the welfare implications of corporate takeovers. Although observers such as Manne (1965), Jensen and Meckling (1976), Fama (1980), and Jensen and Ruback (1983) argue that the market for corporate control promotes efficiency and enhances wealth, some critics, such as managers of firms subject to hostile takeover attempts, contend that takeovers destroy firm value. The critics frequently assert that takeover pressure forces managers to sacrifice profitable, but slowyielding, long-term investments in favor of less productive short-term investments that offer immediate returns. While the evidence supporting takeover-induced shortsightedness is largely anecdotal, a recent paper by Stein (1988) develops a formal