Abstract
We argue and demonstrate empirically that institutional and political economy considerations have first-order effects in tests that use state antitakeover laws for identification. A priori, the size and direction of a law’s effect on a firm’s takeover protection depends on (i) other state antitakeover laws, (ii) pre-existing firm-level takeover defenses, and (iii) the legal regime as reflected in important court decisions. In addition, (iv) state antitakeover laws are identifiably not exogenous for many firms. We show that the inferences from nine prior studies relating to nine different outcome variables change substantially when we include controls for these considerations.
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