Takeover Defenses, Innovation, and Value-Creation: Evidence from Acquisition Decisions

Strategic Management Journal, 2014, Vol. 35, No. 5, pp. 668-690, DOI: 10.1002/smj.2121

34 Pages Posted: 29 Mar 2010 Last revised: 29 Jul 2014

See all articles by Mark Humphery-Jenner

Mark Humphery-Jenner

UNSW Business School; Financial Research Network (FIRN)

Date Written: 2014

Abstract

The desirability of anti-takeover provisions (ATPs) is a contentious issue. ATPs might enable managerial empire building by insulating managers from disciplinary takeovers. However, some companies, such as ‘hard-to-value’ (HTV) companies, might trade at a discount due to valuation difficulties, thereby exposing HTV companies to opportunistic takeovers, and creating agency conflicts of managerial risk-aversion. ATPs might ameliorate such managerial risk aversion by inhibiting opportunistic takeovers. This paper analyzes acquisitions made by HTV firms, focusing on whether the acquirer (not the target) is entrenched in order to examine the impact of entrenchment managerial decision-making. The results show that HTV firms that are entrenched make acquisitions that generate more shareholder wealth and are more likely to increase corporate innovation, suggesting that ATPs can be beneficial in some firms.

Keywords: Valuation, Takeovers, Acquisitions, Governance, Managerial Risk Aversion, Innovation

JEL Classification: G34, G38, K22, O31, O32

Suggested Citation

Humphery-Jenner, Mark, Takeover Defenses, Innovation, and Value-Creation: Evidence from Acquisition Decisions (2014). Strategic Management Journal, 2014, Vol. 35, No. 5, pp. 668-690, DOI: 10.1002/smj.2121. Available at SSRN: https://ssrn.com/abstract=1579167 or http://dx.doi.org/10.2139/ssrn.1579167

Mark Humphery-Jenner (Contact Author)

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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