The Financial Strategic Consistence and Firm Performance: Evidence from Manufacture Industry in China

Firm strategy expresses a basic idea of how to reach firm’s objectives. Financial strategy, as a functional strategy, is subject to the overall firm strategy. The financial strategy plays an important role in firm strategy. This paper formulates a theoretical model to explain why target shareholders under corporate control contests allow their managers to play the role of a gatekeeper despite the conflicting incentive of the managers to resist takeover attempts that might increase firm value. The paper claims that sometimes the existence of a manager with a conflicting goal can contribute to enhancing the welfare of his shareholders under a corporate control contest where bidders have the choice of takeover methods. We set up a game-theoretical model and derive a separating equilibrium where bidders with higher synergy prefer a tender offer to a merger, and the bidders are forced to pay a higher takeover premium in a hostile tender offer due to the existence of informed target managers who can make counter offers under a merger deal.