Price and Probability: Decomposing the Takeover Effects of Anti-Takeover Provisions

Abstract

This paper studies the effects of anti-takeover provisions on takeovers and identifies the channels through which they create or destroy value for firms, as well as for the economy as a whole. We provide causal estimates – that also deal with the endogenous selection of targets – showing that voting to remove an anti-takeover provision increases the takeover probability by 4.5% and garners a 2.8% higher premium, which results from increased competition for less protected targets. We also find evidence of net value creation in the economy stemming from more related acquisitions and targets being matched to more valuable acquirers.

Keywords: takeover premium, anti-takeover provisions, shareholder proposals

JEL Classification: G34