How Managerial Motives Can Erode Value Creation

Managerial motives can erode value creation as firms pursue diversification

initiatives. These include growth for growth's sake, egotism and anti-takeover tactics.

I. Growth for growth’s sake

- managers may act for their own self interest
- enjoying higher recognition due to major acquisition
- higher intensive in larger firms
- thus value eroding rather than enhancing

II. Egotism
- lead to great length to win

III. Anti-takeover
- define as managers actions to avoid losing wealth or power as a result of a hostile
takeover.

Three types of anti-takeover:

1. Greenmail- a payment by a firm to a hostile party for the firm's share at premium,
made when the firm's management feels that the hostile party is about to make a
tender offer.
2. Golden Parachute - a prearranged contract with managers specifying that, in the
event of hostile takeover, the target firm's managers will be paid a significant
severance package.
3. Poison Pill- used by a company to give shareholders certain rights in the event of
takeover by another firm.