Antitakeover Provisions Research Articles

Can Firms’ ESG initiatives deter hostile Takeovers?

In this study, we examine the role of acquiree firms’ environmental, social, and governance (ESG) performance in affecting hostile takeover threats from acquiring firms. Our results show that firms facing hostile takeover threats increase investment in ESG initiatives. The positive association between hostile takeover threats and firms’ ESG investments is stronger for firms domiciled in states with expanded constituency statutes and for firms with fewer antitakeover provisions. Quasi-natural experiments based on the adoption of poison pill statutes further show that firms domiciled in states with such laws tend to exhibit lower levels of ESG investment after (vs. before) the passage of the statutes. In addition, we find that the probability of receiving hostile bids in a given year is lower for firms that increased their ESG investment in previous years, especially firms with a strong threat of ex-ante hostile takeover. Taken together, our findings suggest that firms use ESG investments as an important antitakeover device and that the threat of corporate hostile takeover has unintended effects on firms’ ESG investment and ethical business practices.

Stay Vigilant in Peace Time? Antitakeover Provisions and Corporate Social Responsibility

We examine how antitakeover provisions (ATPs) impact corporate social responsibility (CSR) disclosure for Chinese listed firms. The empirical results show that the level of CSR disclosure is positively related to the level of ATPs, and this relationship is primarily observed in State-Owned Enterprises (SOEs). Further evidence indicates that this association is most prevalent in observations with lower efficiency or higher legitimacy pressures. Our paper provides new evidence on the mixed motivations for CSR disclosure in Chinese firms and offers insights into the moderating effects of ATPs in the context of weak corporate governance.

Does Antitakeover Provision Harm Shareholders? Indexing for Antitakeover Provisions in China

Abstract Does antitakeover harm shareholders? Encumbered by a multitude of theoretical perspectives, the legality of antitakeover remains a shared intellectual inquiry that the A-share market has yet to fully address. This paper constructs a governance index for the A-share market based on a manually collected and hand-coded research dataset (C-index). This dataset, comprising 4251 historical firm-level profiles of Antitakeover Provisions (ATPs), is meticulously sampled from companies listed in China from 2001 to 2017. The study investigates the logical correlation between antitakeover strength, financial performance, and the governance attributes of the company by leveraging the index’s economic utility. Additionally, this paper explores the firm-level factors that prompt corporate directors to integrate ATPs. From an empirical standpoint, it provides evidence that the governance index of firm-level strength of ATPs is positively correlated with share liquidity, institutional shareholding, private ownership, and the company’s commitment to achieving specific financial performance.

Anti-takeover provisions, managerial overconfidence, and corporate cash holdings in Korean listed firms

The management of an entity faces diverse decisions concerned with corporate operations and financing choices. Investigating various factors affecting a company’s cash holdings provides valuable insights into the decision-making processes of an organization. This study examines the effect of Anti-Takeover Provisions (ATPs), Managerial Overconfidence, and their interaction on the level of an entity’s cash holdings. Conducting a regression analysis, this study examines 3,409 firm-year observations from Korean listed entities covering 2011 to 2018. Results reveal that anti-takeover provisions positively influence an entity’s cash holdings (coefficient = 0.464, t-stat value = 7.83). Additionally, managerial overconfidence negatively affects cash holdings (coefficient = –0.140, t-stat value = –2.77). Furthermore, the interaction between anti-takeover provisions and managerial overconfidence significantly influences cash holdings (coefficient = –0.402, t-stat value = –3.46), especially in firms employing specific provisions such as supermajority vote requirements for executive dismissal (coefficient = –0.445, t-stat value = –2.73), issuance of convertible preferred stock (coefficient = –0.341, t-stat value = –1.76), and golden parachutes (coefficient = –0.715, t-stat value = –3.02). This study provides empirical evidence on how anti-takeover provisions and managerial traits influence corporate cash reserves. The study offers valuable insights for regulators, investors, and corporate management. It also emphasizes prudent cash management, urging firms, especially those with anti-takeover provisions and overconfident management, to reconsider financial policies to mitigate risks associated with aggressive decision-making.

Do anti-takeover provisions restrain IPO underpricing? An analysis from the perspective of information asymmetry

PurposeBased on the textual-analyzed data covering 2148 IPO firms in China’s stock market during the 2007–2018 period, the authors’ purpose is to examine the influence of anti-takeover provision (ATP) adoption on initial public offerings (IPO) underpricing and identify the reducing effect of the former.Design/methodology/approachThe authors examine the sample consisting of Chinese A-share listed IPO firms between 2007 and 2018 from China Stock Market Accounting Research and Chinese Research Data Services, with ATP data collected from the IPO firm chapters. Specifically, the authors use text analysis to identify whether there are ATPs in the IPO firm chapters, as well as the number of ATPs. H1: IPO underpricing is less severe for firms adopting ATPs. H2: The effect of ATP adoption on IPO underpricing is more salient for firms in worse information environments.FindingsThe authors examine the influence of ATP adoption on IPO underpricing and identify the reducing effect of the former. This effect can be explained by the fact that adopting ATPs in IPO firm chapters can reduce information asymmetry to a large extent by helping external investors obtain more private information, which alleviates IPO underpricing. The authors also find that the reducing effect is more significant in the worsened information environment. Furthermore, the authors explore the influence of adopting ATPs on other IPO characteristics and find positive effects on IPO over-subscription, funds raised and trading activity and negative effects on listing fees.Originality/valueThis study mainly contributes to the literature from the following two aspects. First, the study enriches the literature about the influencing factors of IPO underpricing. Second, the study also enriches the literature about the economic consequences of ATP adoption. This study also has important policy implications. With the coming of the era of decentralized ownership in China’s capital market, ATP adoption has become more important and attracted more attention. Also, investors focus more on pricing efficiency. The findings in this paper provide a more comprehensive understanding of the relationship between ATP adoption and IPO underpricing.

Another look at the managerial entrenchment hypothesis of acquisitions: A replication of Humphery-Jenner (2014)

Anti-takeover provisions have long been associated with managerial entrenchment, self-interested strategic behaviors, and lower performance. Humphery-Jenner (2014) offers an opposing view, arguing that anti-takeover provisions can lead to beneficial managerial entrenchment for acquiring firms in hard-to-value industries. These firms are particularly vulnerable to opportunistic takeovers and once shielded from those threats, managers could undertake acquisition strategies that offer positive performance outcomes over a longer-term horizon. We replicate Humphery-Jenner's study to assess the boundaries and generalizability of his hypothesis. After we first reproduce his findings for his sample of 3935 acquisitions occurring between 1990 and 2005, we find no relationship between anti-takeover provisions, acquisitions by firms in hard-to-value industries, and firm performance in both an updated sample of acquisitions (3372 acquisitions made during 2006–2015) and a combined sample encompassing 7307 acquisitions spanning the complete 26-year period (1990–2015). We also find no relationships between anti-takeover provisions and acquisition performance in the replication. Overall, the beneficial managerial entrenchment hypothesis of acquisitions appears to have limits to its generalizability.

Making anti-takeover provisions a bulwark of financial stability for hospitality firms during the COVID-19 crisis

Making anti-takeover provisions a bulwark of financial stability for hospitality firms during the COVID-19 crisis

부채특성이 경영권방어수단과 타인자본비용 간의 관계에 미치는 영향

Purpose - This study examines the effect of corporate debt characteristics on the relationship between anti-takeover provision and the cost of debt.
 Design/methodology/approach - The study analyzes a sample of non-financial firms listed on the stock market with December fiscal year-end from 2011 to 2018. Debt default risk (debt size, liquidity ratio, interest coverage ratio, loss occurrence) and the issuance of bonds are utilized as measures of corporate debt characteristics.
 Findings - First, it is observed that creditors of firms with anti-takeover provision demand higher returns as the debt default risk of these firms increases. Second, for firms issuing bonds, it is found that bondholders in companies with anti-takeover provision also seek higher returns.
 Research implications or Originality - This study contributes by demonstrating that the effect of anti-takeover provision on creditors can vary depending on corporate debt characteristics. Particularly, the study highlights the importance of a firm's debt default risk and creditor distinction (bondholders vs. regular creditors) as significant factors that may influence perceptions of anti-takeover provision.

The causal effect of corporate governance on employee satisfaction

AbstractWe investigate the causal effect of increasing shareholder rights on employee satisfaction. To ensure causality, we use close shareholder votes on antitakeover provisions included in the Entrenchment Index (E‐Index) as exogenous shocks to the corporate governance of a company. A 1‐point increase in shareholder rights on the E‐Index scale causes a 10% decrease in employee satisfaction. The channels that drive our results are decreases in employees' opinion about firm culture, in their view about the company's CEO, in the number of employees, and in capital expenditures.

경영권방어수단과 타인자본비용

[Purpose]This study examines the effect of Anti－Takeover Provisions(ATP, hereinafter referred to as ATP) on the cost of debt capital using credit ratings and borrowing interest rates. Through this, it is intended to clarify whether creditors interpret ATP, which means weakening shareholder rights, differently from shareholders.
 [Methodology]From 2011 to 2018, domestic companies listed on the KOSPI Market excluding the financial industry were selected as samples, and ATP were identified through the articles of incorporation. We conducted a regression analysis to verify the effect of Anti－Takeover Provision on the cost of debt.
 [Findings]As a result of the analysis, companies with ATP had relatively lower credit ratings and higher borrowing interest rates than those without ATP. And the more ATP they had, the lower their credit rating was. This is consistent with overseas empirical studies that the weakening of shareholder rights is also disadvantageous to creditors, supporting that mergers and acquisitions can benefit from coinsurance effect, which reduces the risk of default by improving the company’s debt capacity after the merger.
 [Implications]This study has contributions in that it analyzed the impact of strengthening (or weakening) shareholder rights on creditors using domestic data. Research and systems related to corporate governance have been dealt with a lot from the perspective of shareholders, but there is a lack of various studies on how they affect creditors. Creditors are major stakeholders of the company and play an important role in corporate governance. In this study, it is meaningful in that the impact of changes in corporate governance on them from the perspective of creditors was analyzed through ATP.

Do Classified Boards Deter Takeovers? Evidence from Merger Waves

AbstractWe exploit the arrival of industry-wide synergistic merger waves to identify whether classified boards deter takeover bids. In a stylized model, we show that when target classified boards are costly to bidders, their negative effect on takeover likelihood should be more pronounced during merger waves. Using a sample of takeover bids in the United States between 1990 and 2016, we find strong evidence supporting this prediction. The results are robust to accounting for the benefits of classified boards and controlling for other antitakeover provisions. Our findings suggest that classified boards effectively reduce a firm’s exposure to the takeover market.

Systemic risk in non financial companies: Does governance matter?

The paper investigates the impact of four key corporate governance mechanisms - board, audit, compensation and ownership, and anti-takeover provisions - on the exposure and contribution to systemic risk of >400 US non-financial companies (NFCs) listed in S&P500 from 2005 to 2020. Our results show that in NFCs, unlike in banks, good corporate governance practices constrain both systemic risk exposure and contribution. We find a complementary effect between internal corporate governance mechanisms in reducing both the contribution and the exposure to systemic risk, and a substitution effect between internal and external governance practices in constraining the exposure of NFCs to systemic risk. Moreover, strong corporate governance practices are shown to constrain systemic risk both in steady-state conditions and in times of distress.

Does Monitoring of Asset Owners Accelerate Engagement by Asset Managers? Analysis of Antitakeover Provisions of Japanese Listed Companies

Does Monitoring of Asset Owners Accelerate Engagement by Asset Managers? Analysis of Antitakeover Provisions of Japanese Listed Companies

Causality Between Firm-Level Governance and Firm Value

This paper investigates empirically whether there is a causal relation between firm-level governance and firm value. The firm-level governance quality is quantified by using anti-takeover provisions, which are classified boards, fair price, and poison pill. The firm value is measured by Tobin’s Q and return on assets in the part of Robustness Check. The data was found in platform WRDS, with database vendors of Compustat and Institutional shareholder services (ISS), ranged from 1998 to 2006, after data matching and data cleaning, with 1645 left. The regression results indicate that there is causality between firm-level governance and firm value, specifically that poor governance significantly contributes to the reduction of firm value. The robustness check has certified that the results in the regression analysis are credible. Further research will be desirable for firm data from countries such as China. In addition, the range of observation years of the data is expected to expand as data vendors have increased authority to access to the data.

How does shareholder governance affect the cost of borrowing? Evidence from the passage of anti-takeover provisions

This paper examines the effect of shareholder governance on firms' cost of borrowing using the voting outcomes of shareholder-sponsored anti-takeover governance proposals. Implementing a regression discontinuity design centered around the proposals' passing thresholds, we show that firms' public debt prices fall significantly upon the proposals' passage, and that banks demand higher interest rates and more general covenants on new loans issued to those firms. We find that these effects are more pronounced for riskier firms where shareholder-debtholder conflicts are more severe. Moreover, firms with passed shareholder-sponsored proposals become more volatile, reflecting an increase in their risk-shifting incentives. Collectively, our findings suggest that shareholder governance exacerbates shareholder-debtholder conflicts and raises firms’ cost of borrowing.

Do Managerial Entrenchment and High Free Cash Flow Always Have a Negative Impact?

Presence of free cash flow and anti-takeover provisions are often symptomatic of agency problem in a firm. We argue that this relationship is likely to be mediated by motivations of the management. Extant family firm research suggests that the management in family firms are more likely to focus on long-term performance and are more likely to be motivated by the desire to build legacy and attain longevity. This study finds that whereas on average for a non-family firm, both free cash flow and anti-takeover provisions are negatively related to firm performance, the relationship flips in the case of family firms. We find that increased anti-takeover defenses and high free cash flow are related to superior performance in the case of family firms.

Excessive Defense of Antitakeover Provisions and Enterprise Value Based on PSM-DID Quasi-Natural Experimental Method

Under the background of frequent hostile takeover events in China and the autonomy of the articles of association, the articles of association of listed companies even set up antitakeover provisions with an excessive defense that unreasonably restricts the rights of shareholders. Based on the role orientation of innovative supervision, the Small and Medium-sized Investors Service Center (hereinafter referred to as “Investment and Service Center”) proposes to modify the relevant noncompliance provisions in the form of a shareholder recommendation letter. As the basic requirements of the articles of association and the relevant laws in corporate governance are increasingly inconsistent, the legal review of the articles of association is particularly important. This article determines the identification standard of excessive defense of antitakeover provisions by manually collecting the shareholder suggestion letter of the investment service center, the announcement on amendment of association articles of listed companies, and relevant laws and regulations. On this basis, the PSM-DID quasi-natural experimental method is used to empirically test the impact of excessive defense of antitakeover provisions on enterprise value. The study finds that the excessive defense of antitakeover provisions significantly inhibited the enterprise value. In this article, taking a-share listed companies in Shanghai and Shenzhen stock markets in 2007–2018 as an example, with the construction of antiacquisition clause excessive defense index (ATP end), relying on the “quasi-natural experiment” method of PSM-DID, we discuss the impact of excessive defense antiacquisition clause on the value of the enterprise and its impact path analysis. Further study found that its restriction mechanism was reflected in the significant increase of the first type of agency cost and the second type of agency cost. At the same time, the correlation between management compensation and performance and the correlation between management and professional performance are further reduced. Excessive defense against antiacquisition terms can reduce the corporate value, and the impact path of this effect is achieved by increasing type 1 agent costs and type 2 agent costs. It shows that the controlling shareholders are more likely to collude with the management, which aggravates the agency problem. The research conclusion of this article provides legal and economic empirical evidence for listed companies to reasonably set up antitakeover provisions and is also of great significance to innovative regulatory methods such as investment service centers. Excessive defense against antitakeover terms will enhance the dual-ditch effect and ultimately damage corporate value.

CEO Liberalism, Firm Governance, and Innovative Behavior

We draw on upper-echelons literature recognizing the important role of CEOs in firm strategy, and corporate governance research, to examine the role of CEOs’ political ideologies, in particular their degree of liberalism, on firm innovative behavior. We suggest that firms run by liberal CEOs engage in more exploratory innovation search, and produce more breakthrough innovations, but also more low-quality innovations. Internal and external governance mechanisms such as CEO compensation, board independence, institutional ownership, antitakeover provisions, and competition moderate these relationships. We test our hypotheses on a sample of 411 public firms and use firms’ patenting activities to capture innovative behavior. Our study provides a more nuanced perspective on the role of CEO values and their interplay with governance mechanisms on firm innovative behavior.

Which antitakeover provisions deter takeovers?

Antitakeover provisions play a central role in corporate governance research. But there is little agreement over which, if any, provisions actually affect takeover likelihoods. In tests that account for the endogenous use of antitakeover provisions, we find that at most 11 of the 24 G-index provisions are negatively related to takeover likelihood. Various indices used in the literature measure takeover deterrence to the extent they include this subset of provisions. In more stringent tests, only four provisions are consistently and negatively related to takeover likelihood throughout the 1995–2020 period, while one provision (golden parachutes) is positively related to takeover likelihood.

Agency Costs and Strategic Speculation in the U.S. Stock Market

Abstract This study investigates the notion that agency-driven information asymmetry may affect a firm’s stock liquidity. I postulate that less uncertainty about managerial agency problems may enhance liquidity provision by lowering dealers’ perceived adverse selection risk from trading with better-informed speculators. Consistent with my conjecture, I find that the staggered adoption of antitakeover provisions across U.S. states in the 1980s and 1990s — a plausibly exogenous shock unambiguously reducing the threat of (and speculators’ information advantage about) value-enhancing intervention — robustly improves the stock liquidity of affected firms relative to peer firms, especially at prior high fundamental or agency uncertainty and with poor governance. (JEL D22, G14, G34) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.