Abstract
The wealth effect of limiting shareholder rights via anti-takeover provisions(ATPs) is a contentious issue. By taking the differential effect hypothesis perspective, our study aims to provide additional evidence about the relation between ATPs and acquisition performance. We examine the interaction of antitakeover provisions (ATPs) with firm characteristics and governance environment in explaining the cross-section of bidder announcement returns. Using a sample of 3,340 completed acquisitions by 1,217 firms during 1996–2006, we test the association between ATPs, firm characteristics, and governance environments with bidder returns. We find 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 industry competition is weak and public pension fund ownership is low as well. By contrast, when industry competition is intense and/or public pension fund ownership is high, ATPs do not hurt bidder returns. 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 draw the same conclusions.
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
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.
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