Corporate governance and firms’ acquisition behavior: The role of antitakeover provisions

Abstract

Mergers and acquisitions (M&As) are strategically important investments that can drive corporate growth and development. However, they offer uncertain payoffs over the long term and could cost top executives their jobs when results are disappointing. As a result, risk-averse top executives can be reluctant to strategically decide to support even promising M&As. We integrate insights from upper echelon and managerial risk-aversion perspectives to determine whether and when antitakeover provisions can foster firms’ acquisition frequency. Drawing on a sample of 8438 M&As by 1301 public companies in the United States, we report evidence that these provisions positively affect firms’ acquisition frequency. We also find that the positive impact of these provisions on firms’ acquisition frequency is weaker when chief executive officers own a larger proportion of their firms’ equity and when firms operate in industries with higher competition. We discuss the theoretical and practical significance of our findings.