Do antitakeover provisions harm shareholders?

Miroslava Straska, Purdue University

Abstract

A commonly held view regarding antitakeover provisions is that they reduce shareholder wealth. In this study, I provide evidence which suggests that this is not always true. I examine a class of firms that have characteristics consistent with both high potential agency problems and low power to bargain for favorable terms in a takeover. According to the bargaining hypothesis, the firms in the selected class should benefit from having more antitakeover provisions in place. According to the entrenchment hypothesis, the firms in the selected class should be harmed by having more antitakeover provisions in place. Consistent with the bargaining hypothesis, I find that for the selected class of firms, Tobin's Q increases in the number of antitakeover provisions. This positive relation between Tobin's Q and antitakeover provisions persists even after controlling for simultaneity. The evidence suggests that antitakeover provisions are, in fact, beneficial for certain firms.

Degree

Ph.D.

Advisors

Denis, Purdue University.

Subject Area

Finance

COinS