Antitakeover Provisions and Firm Value: New Evidence from the M&A Market

53 Pages Posted: 17 Jan 2019 Last revised: 12 Feb 2020

See all articles by Wolfgang Drobetz

Wolfgang Drobetz

University of Hamburg

Paul P. Momtaz

University of California, Los Angeles (UCLA) - Anderson School of Management; University College London Center for Blockchain Technologies

Date Written: February 11, 2020

Abstract

New evidence from acquisition decisions suggests that antitakeover provisions (ATPs) may increase firm value when internal corporate governance is sufficiently strong. We document that, in Germany, firms with stronger ATPs, and particularly supermajority provisions, are better acquirers. Managers of high-ATP firms create value in acquisitions by making governance-improving deals. They are more likely to engage in acquisitions that reduce their own entrenchment level and less likely to invest in declining industries. Further, our empirical evidence is consistent with a short-termist interpretation. We show that takeover threats can induce myopic investment decisions, which ATPs can mitigate. They also lead managers to engage more often in value-creating long-term and innovative investing, and increase their sensitivity to investment opportunities. Our findings contribute to a growing literature challenging conventional wisdom that the agency-increasing effect of ATPs empirically dominates the myopia-eliminating effect, suggesting that a more contextual view of the value implications of ATPs is necessary.

Keywords: M&A, takeovers, corporate governance, antitakeover provisions, short-termism, firm value

JEL Classification: G30, G34, M21

Suggested Citation

Drobetz, Wolfgang and Momtaz, Paul P., Antitakeover Provisions and Firm Value: New Evidence from the M&A Market (February 11, 2020). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3315730 or http://dx.doi.org/10.2139/ssrn.3315730

Wolfgang Drobetz

University of Hamburg ( email )

Moorweidenstrasse 18
Hamburg, 20148
Germany

Paul P. Momtaz (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

University College London Center for Blockchain Technologies ( email )

UCL CBT UCL Computer Science
Malet Place London WC
London, London
United Kingdom

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