Does Protectionist Anti-Takeover Legislation Lead to Managerial Entrenchment?
68 Pages Posted: 5 Aug 2017 Last revised: 12 Dec 2018
Date Written: August 5, 2017
I study a protectionist anti-takeover law introduced in 2014 that covers a subset of all firms in the economy. The law had a negative impact on shareholder value and decreased affected firms' likelihood of becoming the target of a merger or acquisition. 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: Suggested Citation