Do anti-takeover devices affect the takeover likelihood or the takeover premium (original) (raw)

Price and Probability: Decomposing the Takeover Effects Of Anti-Takeover Provisions

SSRN Electronic Journal, 2015

This paper decomposes the expected takeover premium from adopting an anti-takeover provision into three components (a causal effect on the takeover probability; a causal effect on the premium paid; and a selection effect) and provides causal evidence on each of those, thus being able to ascertain the contribution of each to shareholder value creation from takeovers. Using data on shareholder-sponsored proposals to remove an anti-takeover provision voted on in annual meetings of S&P 1500 firms between 1994 and 2013, we extend the regression discontinuity design using the approach in Angrist and Rokkanen (2014) to provide causal estimates that do not rely only on firms around the discontinuity. In order to account for selection in observed mergers we estimate sharp bounds for the causal effect of anti-takeover provisions on the takeover premium (Lee, 2009). For an average firm, voting to remove an anti-takeover provision leads to a 4.5% higher probability of being taken over and a 2.8% higher expected unconditional takeover premium. We also find evidence that increased competition in takeover contests is one driver of the estimated increased premium for firms that remove an anti-takeover provision. Finally, we show that 53% of the shareholder gains come from the increased probability of a takeover, with also significant shares for selection and premium effects.

The effects of takeover threats on shareholders and firm value

Journal of Economic Behavior & Organization, 2006

We study the role of takeover threats as a corporate control mechanism using Aghion and Tirole's (1997) model of formal and real authority. Shareholders do not monitor the manager's actions, since ownership is widely dispersed. A corporate raider may monitor, and steps in if a pro¿t opportunity exists. In our model, a takeover threat decreases the manager's effort and harms shareholders. The effect of a takeover threat on the expected value of the ¿rm is ambiguous. It is in the interest of the corporate raider if severance payments the manager receives upon being ¿red are high. Shareholders, however, prefer them to be low. JEL Classi¿cation Codes: G34, G35, G38.

The real effects of financial markets: The impact of prices on takeovers

The Journal of Finance, 2012

Using mutual fund redemptions as an instrument for price changes, we identify a strong effect of market prices on takeover activity (the "trigger effect"). An interquartile decrease in valuation leads to a seven percentage point increase in acquisition likelihood, relative to a 6% unconditional takeover probability. Instrumentation addresses the fact that prices are endogenous and increase in anticipation of a takeover (the "anticipation effect"). Our results overturn prior literature that finds a weak relation between prices and takeovers without instrumentation. These findings imply that financial markets have real effects: They impose discipline on managers by triggering takeover threats. DOES A LOW MARKET valuation make a firm a takeover target? In theory, if acquisition prices are related to market prices, acquirers can profit from taking over a firm whose market value is low relative to its peers-due either to mispricing or mismanagement-and restore it to its potential. Indeed, in practice, acquirers and other investors appear to track a firm's valuation multiples for indications on the potential for acquisition, and managers strive to maintain high market valuations to prevent a hostile takeover. Understanding whether such a link exists is important because, if so, this would suggest that the market is not a sideshow, but rather exerts a powerful disciplinary effect on firm management (as suggested by , , and Jensen ).

The Law and Finance of Anti-Takeover Statutes

SSRN Electronic Journal, 2014

Over the last 15 years, numerous finance articles have examined the effect of anti-takeover statutes on firm and managerial behavior. In this article, we evaluate these studies from a theoretical-legal and an empirical-finance perspective. To assess the impact on an anti-takeover statute from a theoretical perspective, one has to evaluate how the statute affects the ability of a firm to defend itself in light of the other defenses already available to a firm. But given gaps in the protection they afford and the availability of other, more powerful, takeover defenses-specifically, poison pills-standard antitakeover statutes do not materially increase a company's ability to resist a hostile takeover bid. From the empirical side, the finance studies omit important control variables, use improper specifications, contain errors in when states adopted statutes and which companies such statutes cover, and suffer from selection bias and endogeneity. These problems render the empirical results derived by these studies unreliable. Indeed, we are able to replicate several of the empirical studies we criticize and to show that the results in none of these studies withstand closer scrutiny. Our article has important implications, in particular for the debate over whether an increased threat of a takeover acts as a disciplining device or induces short-termism. The finance studies we criticize have supplied most of the empirical evidence in this debate. But if, as we argue, these studies suffer from serious flaws, the bulk of our understanding of the effects of a takeover threat has to be reassessed.

The Effect of Hostile Takeover Threats on Capital Structure: Evidence From Half a Century

SSRN Electronic Journal

Capitalizing on a distinctive measure of takeover susceptibility mainly based on the staggered passage of anti-takeover state legislations, we examine the effect of the takeover market on corporate leverage. Stretching over half a century from 1964 to 2014, our sample includes nearly 180,000 observations and spans the entire spectrum of state laws in the past five decades. Our results show that more hostile takeover threats diminish leverage considerably. Specifically, an increase in takeover vulnerability by one standard deviation reduces leverage by 3.42%. Further analysis validates the results, i.e., propensity score matching, and entropy balancing.

The Effect of Anti-takeover Provisions on Acquirer's return - An empirical study on the US market

2019

This thesis investigates the influence of corporate governance provisions on the M&A performance of bidder firms for completed deals in the United States after the financial crisis. Using the period 2008- 2018, the results show that the anti-takeover provisions (ATPs) have a positive relation with acquirers’ returns, which is in contradiction with previous studies. However, this outcome is not significant. On the other side, I find evidence that the entrenchment indices of Bebchuk et al. (2004) and Bebchuk & Cohen (2005) have an inverse association with bidders’ profitability. In addition, this research studies whether CEOs who possess the position of chairman of the board proceed to value destruction acquisitions, although findings show an insignificant relationship between them. Finally, this paper reports no conclusive evidence that firms with CEO duality proceed to more valuable acquisitions.

The Takeover Deterrent Effect of Open Market Share Repurchases

2007

This paper examines whether open market share repurchases deter takeovers. We model pre-repurchase takeover probability as a latent variable and examine its impact on the firm's decision to repurchase shares. Given specification tests reject the Tobit model, we turn to the censored quantile regression method of Powell (1986, "Journal of Econometrics" 32, 143-155). We find a significantly positive relation between open market share repurchases and takeover probability, and we reconcile empirical findings in previous studies that contradict predictions. Repurchase activity is inversely related to firm size, consistent with smaller firms having greater information asymmetry, and is related to temporary, but not permanent, cash flows. Copyright 2007 by The American Finance Association.