Antitakeover Provisions and Investment in Mergers and Acquisitions: A Causal Reevaluation

Posted: 9 Mar 2020 Last revised: 23 Apr 2021

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: April 14, 2021

Abstract

In this study, we are the first to reevaluate causally the effects of antitakeover provisions (ATPs) on the likelihood and quality of investment in mergers and acquisitions (M&A). We do so by exploiting instrumental variables to circumvent evidential endogeneity in ATPs. Our causal analysis is new to reveal that higher levels of ATPs are associated with lower propensity for investment in M&A and, after accounting for unobservable factors that affected the decision to invest in M&A, with investment that is more likely to be both value enhancing to shareholders and personally riskier to managers. Our findings support theory and evidence in other corporate contexts that gives weight to the possibility that ATPs curb risk related agency conflict. Our collective findings of a (positive) surprise also provide substantiation for known information about ATPs having value relevance for market perception of the quality of investment in M&A.

Keywords: antitakeover provisions; mergers and acquisitions; risk related agency conflict; causality

JEL Classification: G34

Suggested Citation

Carline, Nicholas F. and Gogineni, Sridhar, Antitakeover Provisions and Investment in Mergers and Acquisitions: A Causal Reevaluation (April 14, 2021). Journal of Corporate Finance (Forthcoming) https://doi.org/10.1016/j.jcorpfin.2021.101962, 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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