Do IPO Charters Maximize Firm Value? Antitakeover Protection in Ipos
Stanford Law School; Stanford Graduate School of Business
Stanford Law School
January 16, 2000
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
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.
Number of Pages in PDF File: 49
JEL Classification: G30, G32
Date posted: February 24, 2000
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