Institutional and Legal Context in Natural Experiments: The Case of State Antitakeover Laws

59 Pages Posted: 11 Sep 2014 Last revised: 18 Jul 2018

See all articles by Jonathan M. Karpoff

Jonathan M. Karpoff

University of Washington - Michael G. Foster School of Business; European Corporate Governance Institute (ECGI)

Michael D. Wittry

Ohio State University (OSU) - Department of Finance

Date Written: April 10, 2017

Abstract

We argue and demonstrate empirically that a firm’s institutional and legal context has first-order effects in tests that use state antitakeover laws for identification. A priori, the size and direction of a law’s effect on a firm’s takeover protection depends on (i) other state antitakeover laws, (ii) pre-existing firm-level takeover defenses, and (iii) the legal regime as reflected in important court decisions. In addition, (iv) state antitakeover laws are not exogenous for many easily identifiable firms. We show that the inferences from nine prior studies relating to nine different outcome variables change substantially when we include controls for these considerations.

Keywords: Antitakeover laws, business combination laws, takeover defenses, natural experiments, test identification

JEL Classification: G34, G38, K22, L51

Suggested Citation

Karpoff, Jonathan M. and Wittry, Michael D., Institutional and Legal Context in Natural Experiments: The Case of State Antitakeover Laws (April 10, 2017). Journal of Finance, 73(2), 657-714, April 2018, Available at SSRN: https://ssrn.com/abstract=2493913 or http://dx.doi.org/10.2139/ssrn.2493913

Jonathan M. Karpoff (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353226
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206-685-4954 (Phone)
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European Corporate Governance Institute (ECGI) ( email )

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Michael D. Wittry

Ohio State University (OSU) - Department of Finance ( email )

854 Fisher Hall
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Columbus, OH 43210-1144
United States
614-292-3217 (Phone)

HOME PAGE: http://fisher.osu.edu/people/wittry.2

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