Do IPO Charters Maximize Firm Value? Antitakeover Protection in Ipos

38 Pages Posted: 15 Nov 2005

See all articles by Robert Daines

Robert Daines

Stanford Law School; Stanford Graduate School of Business; European Corporate Governance Institute (ECGI)

Michael Klausner

Stanford Law School; European Corporate Governance Institute (ECGI)

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Abstract

This article focuses on the widely held views that antitakeover charter and bylaw provisions (ATPs) increase agency costs, thereby reducing firm value, but that firms going public minimize agency costs, thereby maximizing firm value. We show that these views cannot comfortably coexist: ATPs are common in a sample of IPO-stage charters and are no less common when the firm is backed by venture capitalists or leveraged buyout funds. Moreover, ATP use is not explained by two efficiency explanations of ATP use with theoretical support - target firms' need for bargaining power when a bid is made and the threat of managerial myopia. Rather, we find evidence that antitakeover protection is used to protect management when takeovers are most likely and management performance most transparent. We find no evidence, however, that ATPs are explained by managers` desire to protect unusually high private benefits.

Suggested Citation

Daines, Robert and Daines, Robert and Klausner, Michael D., Do IPO Charters Maximize Firm Value? Antitakeover Protection in Ipos. Journal of Law, Economics, and Organization, Vol. 17, pp. 83-120, 2001, Available at SSRN: https://ssrn.com/abstract=832267

Robert Daines (Contact Author)

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Michael D. Klausner (Contact Author)

Stanford Law School ( email )

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European Corporate Governance Institute (ECGI) ( email )

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Belgium

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