Antitakeover Provisions and M&A Strategy: A Causal Analysis
52 Pages Posted: 9 Mar 2020
Date Written: February 13, 2020
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: Suggested Citation