Managerial Entrenchment of Anti-Takeover Devices: Quasi-Experimental Evidence from Korea

39 Pages Posted: 14 Jan 2011 Last revised: 14 Dec 2011

See all articles by Sunwoo Hwang

Sunwoo Hwang

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Woochan Kim

Korea University Business School; European Corporate Governance Institute (ECGI); Asian Institute of Corporate Governance (AICG)

Date Written: October 2011

Abstract

With the removal of statute-based anti-takeover provisions during the aftermath of Asian crisis, a significant number of Korean firms started to introduce charter-based measures. In this paper, we make use of this unique situation where firm-level anti-takeover provisions (ATP) vary over time (making firm fixed effects regression feasible) and its amendment requires a shareholder approval (making event study feasible), when investigating the link between ATP and firm performance. Using a sample during 1999-2009, we find that firms with charter-based anti-takeover provisions are smaller in size, have lower inside and foreign ownerships, and upon adoption, experience lower share prices, the extent of which drops with inside ownership. Consistent with the overinvestment hypothesis in Jensen (1986), we also find that these firms increase capital expenditure. Our finding also shows that ATP adoptions are followed by lower profitability and lower dividend payouts. Firms with ATPs also experience greater de-listings after the global financial crisis.

Keywords: Anti-Takeover Provision, Managerial Entrenchment, Korea

JEL Classification: G34

Suggested Citation

Hwang, Sunwoo and Kim, Woochan, Managerial Entrenchment of Anti-Takeover Devices: Quasi-Experimental Evidence from Korea (October 2011). KDI School of Pub Policy & Management Paper No. 11-03. Available at SSRN: https://ssrn.com/abstract=1740370 or http://dx.doi.org/10.2139/ssrn.1740370

Sunwoo Hwang

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

HOME PAGE: http://sites.google.com/view/sunwoohwang

Woochan Kim (Contact Author)

Korea University Business School ( email )

LG-POSCO Bldg #524
Anam-Dong, Seongbuk-Ku
Seoul, Seoul 136701
+822-3290-2816 (Phone)
+822-922-7220 (Fax)

HOME PAGE: http://biz.korea.ac.kr/professor/wckim

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Asian Institute of Corporate Governance (AICG) ( email )

1, 5-ga, Anam-dong
Sungbuk-gu
Seoul, 136-701
Korea, Republic of (South Korea)

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