Does Protectionist Anti-Takeover Legislation Lead to Managerial Entrenchment?

68 Pages Posted: 5 Aug 2017 Last revised: 20 Mar 2019

See all articles by Marc Frattaroli

Marc Frattaroli

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Date Written: March 12, 2019


I study a protectionist anti-takeover law introduced in 2014 that covers a subset of all firms in the economy. The law decreased affected firms' likelihood of becoming the target of a merger or acquisition and had a negative impact on shareholder value. There is no evidence that management of those firms subsequently altered firm policies in its interest. Investment, employment, wages, profitability, and capital structure remain unchanged. The share of annual CEO compensation consisting of equity instruments increased by 8.4 percentage points, suggesting that boards reacted to the loss in monitoring by the takeover market by increasing the pay-for-performance sensitivity.

Keywords: Protectionism, Corporate Governance, Mergers and Acquisitions, Executive Compensation, Free Cash Flow Problem

JEL Classification: F52, G34, G38

Suggested Citation

Frattaroli, Marc, Does Protectionist Anti-Takeover Legislation Lead to Managerial Entrenchment? (March 12, 2019). Swiss Finance Institute Research Paper No. 17-66. Available at SSRN: or

Marc Frattaroli (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )



Swiss Finance Institute ( email )

c/o University of Geneva
42, Bd du Pont d'Arve
Geneva, CH-1211

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