The Effectiveness Of Internal And External Mechanisms Of Corporate Control

Abstract

This research reflects a recent trend toward the development of an overall understanding of corporate control. Previous research has examined CEO turnover and corporate takeovers separately. This research provides a more complete analysis of the corporate control of the firm conditioned on previous events over the period 1978 - 1988. Logistic regression analyses indicate that the probability of a takeover offer is highest for firms performing poorly which have not previously replaced their CEO. Debt, the percentages of stock held by the ceo or outside investor, and the existence of an antitakeover mechanism also affect the probability of a firm receiving a takeover offer. Results support the theory that external corporate control mechanisms do function when internal mechanisms have failed to function. Additionally, results suggest the external labor market is working to attract the CEO of a firm performing well.