The Performance of White-Knight Management

The retention of CEOs that make poor acquisitions

“…However, even if shareholders are more tolerant of a small loss resulting from the acquisition actions of an inexperienced CEO, most white knight takeovers involve large losses in shareholders' wealth. Carroll et al (1998) report a significant abnormal decrease of shareholder wealth of $92.7 million (representing a statistically significant abnormal loss of 3.61%).…”

“…We base the emphasis on the relation between CAR and Tobin's q on Carroll et al (1998) finding the relation is important in determining management retention. This variable should be positive; the higher the abnormal return with a Tobin's q of at least one, the greater the probability the CEO will keep his job.…”

“…Even though a white knight bid puts a spotlight on the poor performance of a firm's management, firms rarely replace the CEOs of white knights following a bad bid. Carroll et al (1998) also note that in the three years following a white knight bid, white knights do not replace their CEOs any more often than the hostile bidders involved in the same contest do. Nor do they replace them any more often than the general population of all business firms.…”

“…In general, the literature shows the chief executives of poorly performing firms keep their positions. Carroll et al (1998) study a group of white knights (defined as friendly bidders who enter a control contest after hostile bidders, often at the request of the target firms). They also describe white knights as poorly performing firms who rarely replace their CEOs.…”

White Knights and the Corporate Governance of Hostile Takeovers

“…Although the empirical literature on mergers and acquisition is quite vast, 14 there exist few studies that look specifically at the long-term performance of white knights' acquisitions (Niden (1993), Carroll et at. (1999)), and the results seem not to be conclusive 15 .…”