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

Abstract

We study the causal effects of anti-takeover provisions on takeovers. We decompose their effect on prices, takeover likelihood and target selection and explore the channels through which they change shareholders' value. We provide causal estimates based on shareholder proposals and deal with the endogenous selection of targets through bounding techniques. Voting to remove an anti-takeover provision increases the annual takeover probability by 0.9% and increases premiums by 2.8%. The premium effect is driven by more related acquisitions, better matching and higher synergies when targets are less protected. We do not find evidence of a trade-off between premiums and takeover probabilities.