Antitakeover Provisions and M&A Strategy: A Causal Analysis

52 Pages Posted: 9 Mar 2020

See all articles by Nicholas F. Carline

Nicholas F. Carline

Department of Finance, Birmingham Business School, University of Birmingham

Sridhar Gogineni

The University of Tampa - John H. Sykes College of Business

Date Written: February 13, 2020

Abstract

The protection provided by antitakeover provisions (ATPs) can be used by managers to undertake acquisitions (M&A) that either reduce their personal risk but worsen shareholder wealth, or those that increase their personal risk but enhance shareholder wealth. We exploit sources of exogeneity at the level of an investing firm and find that managers strategically increase the extent of ATPs in preparation for M&A. This pre-emptive structural change is associated with firms of lower risk, and with firms whose managers are otherwise more likely to diversify the firm away from its primary business. We find that more ATPs cause more wealth creation during M&A. Our findings highlight the importance of controlling for endogenous sample selection and support the notion that takeover protection reduces managerial myopia and benefits shareholders when it comes to determining and shaping a firm's business strategy.

Keywords: antitakeover provisions; mergers and acquisitions; value creation; causality; managerial myopia

JEL Classification: G34, L20

Suggested Citation

Carline, Nicholas F. and Gogineni, Sridhar, Antitakeover Provisions and M&A Strategy: A Causal Analysis (February 13, 2020). Available at SSRN: https://ssrn.com/abstract=3532821 or http://dx.doi.org/10.2139/ssrn.3532821

Nicholas F. Carline (Contact Author)

Department of Finance, Birmingham Business School, University of Birmingham ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Sridhar Gogineni

The University of Tampa - John H. Sykes College of Business ( email )

401 W. Kennedy Blvd.
Tampa, FL 33606-1490
United States
8132533163 (Phone)

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