Do Takeover Defense Indices Measure Takeover Deterrence?

Review of Financial Studies (July 2017) 30 (7): 2359-2412

54 Pages Posted: 22 May 2015 Last revised: 21 Jun 2017

See all articles by Jonathan M. Karpoff

Jonathan M. Karpoff

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

Robert J. Schonlau

Colorado State University, Fort Collins - Department of Finance & Real Estate

Eric W. Wehrly

Western Washington University

Date Written: November 21, 2016

Abstract

Many researchers use the G-index or E-index to measure firms’ takeover defenses. Others argue that these indices are not related to firms’ takeover likelihoods. We find that, unlike their raw values, the instrumented versions of these indices are significantly and negatively related to acquisition likelihood. The difference between the raw and instrumented results indicates that the G-index and E-index include an endogenous component, and highlights the importance of accounting for endogeneity in tests that use takeover indices to measure takeover deterrence. We provide data on new instruments that researchers can use to address these issues.

Keywords: Antitakeover provisions, takeover defenses, G-index, E-index, acquisitions

JEL Classification: G34, K22, L14

Suggested Citation

Karpoff, Jonathan M. and Schonlau, Robert J. and Wehrly, Eric W., Do Takeover Defense Indices Measure Takeover Deterrence? (November 21, 2016). Review of Financial Studies (July 2017) 30 (7): 2359-2412, Available at SSRN: https://ssrn.com/abstract=2608759 or http://dx.doi.org/10.2139/ssrn.2608759

Jonathan M. Karpoff (Contact Author)

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

Box 353226
Seattle, WA 98195-3200
United States
206-685-4954 (Phone)
206-221-6856 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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Belgium

Robert J. Schonlau

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Fort Collins, CO 80523
United States
9704916280 (Phone)
80523 (Fax)

Eric W. Wehrly

Western Washington University ( email )

516 High Street
Bellingham, WA 98225
United States
3606504820 (Phone)

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