Takeover Protection and Firm Value

Abstract

We examine firm value consequences of anti-takeover regulation, exploiting the staggered announcement and implementation of an anti-takeover regulation in the U.K. We show that, on average, takeover protection increases firm value. This effect is partly driven by innovative firms expanding their R&D activities. However, the anti-takeover regulation also increases the value of less productive firms. We show that anti-takeover regulation could constrain highly productive firms from taking over low-productivity firms. Our results imply that, while takeover protection may stimulate innovation, it can distort the allocation of funds by preventing market share from moving from less efficient to more efficient firms.