The Bonding Hypothesis of Takeover Defenses: Evidence from IPO Firms
William C. Johnson
Suffolk University - Sawyer School of Management
Jonathan M. Karpoff
University of Washington - Michael G. Foster School of Business
September 22, 2014
We propose and test an efficiency explanation for why firms deploy takeover defenses using IPO firm data. We hypothesize that takeover defenses bond the firm’s commitments by reducing the likelihood that an outside takeover will change the firm’s operating strategy and impose costs on its business partners. Consistent with this hypothesis, we find that IPO firms deploy more takeover defenses when they have important business relationships to protect. An IPO firm’s use of takeover defenses is positively related to the longevity of its business relationships. IPO firms’ large customers experience spillover effects that are positively related to the IPO firm’s use of takeover defenses. And IPO firms’ valuation and subsequent operating performance are positively related to their use of takeover defenses when it has important business relationships.
Number of Pages in PDF File: 62
Keywords: antitakeover provisions, governance, firm value, initial public offerings
JEL Classification: G34, K22, L23working papers series
Date posted: September 7, 2011 ; Last revised: September 25, 2014
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