ANALYSIS OF THE ROLE INSTITUTIONAL INVESTORS PLAY IN TAKEOVERS

Abstract

This article examined the role institutional investors' play in takeovers. Managers of companies are agents of the owners of companies and are expected to carry out their responsibilities for the sole purpose of protecting the interests of owners of companies, in this instance, institutional investors. Due to the fact that managers have access to more information about companies than institutional investors, there is the tendency to pursue their selfish interests as against the interests of the owners of the company. Institutional investors respond by utilising market for corporate control to punish managers of poorly managed companies. This they do by way of takeover. The question worth answering is whether takeovers actually punish managers. This article focused on the United Kingdom and the United States of America due to the active roles institutional investors in these jurisdictions play in market for corporate control. Such active roles to the best knowledge of this article were not found in Nigeria. The article found that takeovers do not really punish managers as they end up making more money by way of huge payout or getting new jobs at the acquiring firm. Acquirer firm managers benefit from increased remuneration linked with firm size. It was also found that takeovers lead to job loss of employees of target firms. It is recommended that the interests of employees of target firms be taken into consideration in negotiating for takeovers.