Directors' recommendations in response to takeover bids: do they act in their own interests?

The extent to which directors of target companies act in their own interests, and not shareholder interests, when a takeover bid is received is examined using data from 400 takeover bids for Australian listed companies. A series of hypotheses is developed from theoretical inquiry into the motives of target company directors. Using univariate and multivariate analysis to test these hypotheses, it is found that directors' accept/reject recommendations to shareholders are associated with target leverage, bid premium, bidder's initial shareholding, ownership concentration (univariate only) and directors' shareholding in the target (univariate only). It is concluded that, overall, directors have acted in a manner consistent with shareholder interests, even though personal wealth effects are greatest for directors of bid-accept targets.