The Lifecycle Effects of Firm Takeover Defenses

61 Pages Posted: 13 Jul 2016 Last revised: 17 Apr 2018

See all articles by William C. Johnson

William C. Johnson

Suffolk University - Sawyer School of Management

Jonathan M. Karpoff

University of Washington - Michael G. Foster School of Business

Sangho Yi

Sogang University

Date Written: April 2, 2018

Abstract

We propose and test the value reversal hypothesis, which holds that takeover defenses that enhance value when a firm is young become costly over time. Consistent with this hypothesis, we find that (i) takeover defenses are sticky and are rarely removed, and (ii) the average relation between firm value and the use of defenses is positive at the IPO but declines and becomes negative as the firm ages. The decline in value is most pronounced among firms that deploy the most sticky defenses, for which the bonding benefits of takeover defenses decrease over time, and for which entrenchment costs increase.

Keywords: Takeover defenses, antitakeover provisions, bonding, entrenchment, lifecycle

JEL Classification: G34, K22, L14

Suggested Citation

Johnson, William C. and Karpoff, Jonathan M. and Yi, Sangho, The Lifecycle Effects of Firm Takeover Defenses (April 2, 2018). Available at SSRN: https://ssrn.com/abstract=2808208 or http://dx.doi.org/10.2139/ssrn.2808208

William C. Johnson (Contact Author)

Suffolk University - Sawyer School of Management ( email )

Boston, MA 02108
United States

Jonathan M. Karpoff

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)

Sangho Yi

Sogang University ( email )

Seoul 121-742
Korea, Republic of (South Korea)
82-2-705-8864 (Phone)

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