Cash Holdings, Corporate Governance and Acquirer Returns

Seoungpil Ahn,Jaiho Chung

doi:10.2139/ssrn.2023211

Abstract

We examine the interactive nature of antitakeover provisions (ATPs) with firm characteristics and governance environments in explaining the cross-section of bidder announcement returns. Using completed deals for the period of 1996-2006, we document that ATPs hurt acquisition performance only when acquirers hold a high level of excess cash. Similarly, ATPs are associated with lower bidder returns only when product market competition is weak and/or public pension fund ownership is low. By contrast, when product market competition is intense and/or public pension fund ownership is high, ATPs have no impact on bidder returns. The presence of the complementarity among ATPs, excess cash, industry competition, and public pension fund ownership suggests that ATPs per se do not necessarily result in value-destroying acquisitions for all firms. We address the endogeneity issue of unknown variables by using a proxy for firm prestige and find consistent evidence.

Highlights

The wealth effect of limiting shareholder rights via anti-takeover provisions(ATPs) is a contentious issue
Results and discussion we conduct multivariate tests examining the interactions of Anti-takeover provisions (ATPs) with excess cash, industry competition, and public pension fund ownership with bidder returns
The effect of anti-takeover provisions on acquisition performance is an important issue in discovering the channels through which ATPs affect shareholder value

Summary

Introduction

The wealth effect of limiting shareholder rights via anti-takeover provisions(ATPs) is a contentious issue. Anti-takeover provisions (ATPs) restrict shareholders’ rights by shielding managers from takeovers and shareholder activism. The wealth effect of limiting shareholder rights via ATPs is a contentious issue. Managers may be able to pursue risky, long-term projects that increase long-term value (Chemmanur and Jiao 2011). While these conflicting arguments predict either the abolition or addition of ATPs to maximize firm value, they appear inconsistent with the fact that large publicly traded companies adopt a fairly stable number and type of ATPs.

Objectives

Methods

Results

Conclusion