ORGANIZATION THEORY AND THE MARKET FOR CORPORATE-CONTROL - A DYNAMIC ANALYSIS OF THE CHARACTERISTICS OF LARGE TAKEOVER TARGETS, 1980-1990

This paper describes how takeovers are accomplished and why they are not readily accommodated by existing organizational theories. We examined the factors that made organizations vulnerable to takeovers during the 1980s, using event-history techniques on time-series data covering all takeover bids for Fortune 500 firms between January 1980 and December 1990. The paper shows that greater organizational slack, age, and having a finance chief executive officer increased the risk of takeover; family control and financial characteristics such as a higher market-to-book ratio lowered the risk; while bank control and intercorporate network ties had no discernable effect. The results indicate an irony: Large corporations that were most successful by the standards of organization theory were most likely to be taken over in the 1980s. We argue that theory about organizations and environments has been premised on an assumption of managerialism that is no longer tenable and that it must adjust to the financial model of the corporation that now dominates economic and policy discourse.