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Do IPO Charters Maximize Firm Value? Antitakeover Protection in Ipos
Robert Daines Stanford Law School Michael Klausner Stanford Law School New York University Center for Law and Business Working Paper No. 99-015; and Stanford Law School John M. Olin Law and Economics Working Paper No. 184 Abstract: This paper focuses on the widely held views that: (a) antitakeover provisions (ATPs) increase agency costs, thereby reducing firm value; and (b) firms going public minimize agency costs, thereby maximizing firm value. We show that these views cannot comfortably co-exist: ATPs are common in a sample of IPO-stage charters. Moreover, ATP use is not explained by two efficiency explanations of ATP use with theoretical support - target firms' need for bargaining power when a bid is made and the threat of managerial myopia. Rather, we find that antitakeover protection is used to protect management when takeovers are most likely and management performance most transparent. ATP use, however, is uncorrelated with a proxy for high private benefits.
JEL Classifications: G30, G32 Accepted Paper SeriesDate posted: February 24, 2000 ; Last revised: February 04, 2009Suggested CitationContact Information
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