How Does Private Firm Innovation Affect Anti-Takeover Provisions in Corporate Charters? Evidence from Initial Public Offerings

68 Pages Posted: 3 Dec 2018 Last revised: 22 Aug 2022

See all articles by Thomas J. Chemmanur

Thomas J. Chemmanur

Boston College - Carroll School of Management

Manish Gupta

Nottingham University Business School

Karen Simonyan

Suffolk University - Department of Finance

Xiang Zheng

University of Connecticut - Department of Finance

Date Written: August 20, 2022

Abstract

Using data on anti-takeover provisions (ATPs) and top management characteristics hand-collected from IPO prospectuses, we analyze the effect of the pre-IPO innovativeness and the top management quality of private firms on the number and strength of ATPs in IPO firm charters. We test the “long-term value creation” hypothesis, predicting that more innovative private firms and those with higher top management quality will have more (and stronger) ATPs in their charters; and the “management entrenchment” hypothesis, predicting the opposite. Our results support the former hypothesis. We show causality using an IV analysis using the leniency of patent examiners as an instrument.

Keywords: Anti-Takeover Provisions (ATPs); Private Firms; Pre-IPO Innovation; Top Management Quality; Initial Public Offerings (IPOs)

JEL Classification: G30, G34, K22, O31, O32

Suggested Citation

Chemmanur, Thomas J. and Gupta, Manish and Simonyan, Karen and Zheng, Xiang, How Does Private Firm Innovation Affect Anti-Takeover Provisions in Corporate Charters? Evidence from Initial Public Offerings (August 20, 2022). Available at SSRN: https://ssrn.com/abstract=3287883 or http://dx.doi.org/10.2139/ssrn.3287883

Thomas J. Chemmanur

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://https://www2.bc.edu/thomas-chemmanur/

Manish Gupta

Nottingham University Business School ( email )

University of Nottingham
Jubilee Campus
Nottingham, NG8 1BB
United Kingdom

Karen Simonyan (Contact Author)

Suffolk University - Department of Finance ( email )

8 Ashburton Place-Beacon Hill
Boston, MA 02108-2770
United States
(617) 973-5385 (Phone)

Xiang Zheng

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

HOME PAGE: http://www.xiangzheng.info/

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