Anti-Takeover Provisions in Corporate Spin-Offs

50 Pages Posted: 16 Mar 2007 Last revised: 16 Apr 2010

See all articles by Thomas J. Chemmanur

Thomas J. Chemmanur

Boston College - Carroll School of Management

Bradford D. Jordan

University of Kentucky - Gatton College of Business and Economics

Mark H. Liu

University of Kentucky - Gatton College of Business and Economics

Qun Wu

U of Nevada, Reno

Date Written: November 1, 2007

Abstract

We empirically analyze the rationale for adopting anti-takeover provisions (ATPs) by examining how ATPs affect corporate spin-offs. We find that firms protected by more ATPs before spin-offs have higher abnormal announcement returns and greater improvement in post-spin-off operating performance than firms with fewer ATPs. Further, firms that reduce the number of ATPs after spin-offs have greater improvement in operating performance than firms that do not reduce the number of ATPs. The CEO of the pre-spin-off firm tends to retain more ATPs in the parent firm and assign fewer ATPs to the spun-off unit if he remains as the CEO of the parent but not the spun-off unit. Our results indicate that the value gains to spin-offs are at least partly due to the reduction in management entrenchment associated with ATPs.

Keywords: Spin-offs, anti-takeover provisions, managerial entrenchment, long-term value creation, announcement return, operating performance

JEL Classification: G30, G34, G38

Suggested Citation

Chemmanur, Thomas J. and Jordan, Bradford D. and Liu, Mark H. and Wu, Qun, Anti-Takeover Provisions in Corporate Spin-Offs (November 1, 2007). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=970659 or http://dx.doi.org/10.2139/ssrn.970659

Thomas J. Chemmanur

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://https://www2.bc.edu/thomas-chemmanur/

Bradford D. Jordan

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-4887 (Phone)
859-257-9688 (Fax)

Mark H. Liu (Contact Author)

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-9842 (Phone)
859-257-9688 (Fax)

Qun Wu

U of Nevada, Reno ( email )

1664 N Virginia St
Reno, NV NEVADA 89557
United States
7756829173 (Phone)

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