Do IPO Charters Maximize Firm Value? Antitakeover Protection in Ipos
49 Pages Posted: 24 Feb 2000
Date Written: January 16, 2000
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 Classification: G30, G32
Suggested Citation: Suggested Citation