Takeover Defenses Research Articles

Hostile Takeovers and Takeover Defences in China

Many companies listed in China adopted anti-takeover provisions (ATPs) in their Articles of Association in the recent years. Although the existing regulatory regime does not clearly address the legitimacy of most defensive tactics, the Chinese regulatory authorities implicitly allow such ATPs. This thesis reveals that the widely adopted ATPs can effectively impede potential takeovers and provide undue protection to inefficient incumbent directors and dominant shareholders. The development of an active corporate control market will be significantly delayed if such ATPs are condoned. This thesis argues that the use of ex ante takeover defences should not be allowed. A new regulatory regime for takeover defences in China is also proposed.

The analysis of corporate governance policy and corporate financial performance

The main purpose of this study is to investigate the relationship between the quality of corporate governance policy and the firm financial performance and. Data were collected from Corporate Library. A sample of 3,068 firms from the database of 2010 Corporate Library was analyzed. Logistic regression models were employed and SPSS statistical package was utilized to perform the analysis. Our results show that when firms have better corporate governance policies, they are more likely to perform better. Specifically, when firms have a better board rating, compensation policy, takeover defense strategy, accounting practice, and a formal governance policy, they are more likely to perform better than their counterparts without such quality corporate governance policies.

Istorijski aspekti razvoja tržišta kapitala i koorporativnog upravljanja

Corporate governance describes the agency problem resulting separation of ownership from control in modern corporation and represents a major expense for shareholders. The agency problem regulating legal protection of small shareholders, establishing the functions of the Supervisory Board of Directors as the body that controls the managers and active market for corporate control (hostile takeover). These mechanisms regulating the regulation of securities (at the federal level), corporate law (at state level), and corporate statutes, Contracting regulations and other rules (firm-level). These regulations, laws and regulations actually defining a distribution of power between shareholders and managers. Such techniques of takeover defense may be beneficial to shareholders, if managers are used to strengthen the bargaining power and increase the selling price of the company. However, if managers use to preserve their own positions and the achievement of personal interests, the provisions do not contribute to the realization of the interests of shareholders.

Motivations Of Public To Private Transactions: An International Empirical Investigation

This article contributes to the financial literature by investigating the motivations of Public to Private transactions in an international perspective (Europe, USA and Asia). We consider seven main possible motivations: tax savings, incentive realignment, control, free cash-flow, growth of prospects, takeover defense and undervaluation. Our empirical findings suggest that low growth prospects, low liquidity and high free cash-flow are the three main motivations for a Public to Private transactions. However, regions show some particularities such as importance of family block-holders in Europe and importance of the level of taxation in Asia.

Bargaining power of targets: Takeover defenses and top-tier target advisors

This paper examines whether takeover defenses (i.e., poison pills and classified boards) can enhance the bargaining position of the target firm, especially when the target advisor is a top-tier investment bank. I find that classified boards and poison pills are positively linked to target's share of merger gains, target announcement returns, and premiums when the target employs a top-tier advisor and the acquisition is initiated by the acquirer. These results support the argument that top-tier target advisors might be more effective in utilizing takeover defenses in deal negotiations to enhance the bargaining position of their client firms and help them capture higher returns and share of merger gains.

Takeover Defenses: Entrenchment and Efficiency

This paper explores the potential role of anti-takeover provisions (ATPs) in long-term value creation. Using multiple research designs, we find that long-term focused (innovative) firms benefit from takeover protection. We also find that the protected innovative firms are less likely to engage in myopic activities, which is consistent with protection reducing short-term pressures on innovative firms. In contrast to prior research that predominantly documents evidence of harmful effects of ATPs on average, we show that ATPs can provide benefits to a subset of firms.

Corporate governance and the dynamics of capital structure: New evidence

The effects of corporate governance on optimal capital structure choices have been well documented, though without offering empirical evidence about the impact of corporate governance quality on the adjustment speed toward an optimal capital structure. This study simultaneously considers two effects of debt originating from agency theory—the takeover defense and the disciplinary effects of debt—on the speed of adjustment to the optimal capital structure. Corporate governance has a distinct effect on the speed of capital structure adjustment: weak governance firms that are underlevered tend to adjust slowly to the optimal capital structure, because the costs of the disciplinary role of debt outweigh the benefits of using debt as a takeover defense tool. Although overlevered weak governance firms also adjust slowly, they do so because they are reluctant to decrease their leverage toward the target level to deter potential raiders, especially if they face a serious takeover threat. Therefore, this study finds that both overlevered and underlevered firms with weak governance adjust slowly toward their target debt levels, though with different motivations.

Reducing Risk through Governance

The main purpose of this study is to investigate the determinants of formal governance policy. Many firms have a formal governance policy. Others, however, have no such a policy. This study examines what kind of firm's characteristics that encourage companies to adopt a formal governance policy. Data were collected from Corporate Library. A sample of 3,068 firms from the database of 2010 Corporate Library was analyzed. Results show that when firms have a better financial performance and better corporate governance practice, they are more likely to have a formal governance policy. Specifically, when firms have a better board rating, compensation policy, takeover defense strategy, and accounting practice, firms are more likely to have a formal governance policy.

Regulating takeover defences in China: the UK model in books and the US model in action

This paper argues that the Chinese regulation of takeover defences converges with the UK regulatory approach ‘in books’. However, due to the absence of enforceable rules, the Chinese law resemble the US law in action by leaving considerable room for management to adopt defensive measures. The conclusion is further supported by an empirical study of embedded defensive measures used in Chinese company constitutions, as well as post-bid defensive measures used in Chinese practice. Moreover, the paper touches upon an interesting and important issue: divergence generated in the process of legal transplantation.

公司收购中企业社会责任问题

对公司收购施以社会责任之要求，事实上构成了对公司收购的一种阻碍，这与长久以来立法将公司收购市场作为公司治理的重要机制之一，促进公司收购市场发展，发挥其增进资本流动和管理层经营效率等作用的宗旨却有所背离。目前各国纷纷效仿的英美公司收购立法，对于公司收购中社会责任的价值判断，体现于对不同利益冲突的具体权衡之中，其核心是在公司和股东利益与利益相关者利益之间寻求平衡点。我国近年来有关公司立法一方面强化了公司和股东利益保护，另一方面，也引入了公司社会责任的理念。我国对公司目标的定位与美国相同，但又采纳了英国股东单独决定收购要约的模式，实际免除了管理层对利益相关者的信托义务。实践中对于国有股权、产业发展、经济安全和“民族品牌”的保护尤为重视，为利益相关者采取收购防御措施的很少，通过非法律途径的居多，内部人控制严重问题与国有资产管理体制的缺陷结合起来，实际演变成目标公司董事会与收购者之争。建议增加管理层的话语权、强化管理层的信托责任并借鉴西方成熟的司法规则，减少公司收购中不规范的利益诉求方式。Considering CSR is a kind of block in company takeover, CSR as a common tool of takeover defense in practice deviates from the legal aim to promote company takeover market and takes advantage of its function in company governance. Nowadays, company takeover law in USA and UK are fol-lowed by most countries to help finding the value of CSR and balancing different interests in judicial judgment. In recent years, China’s company legislation drew into CSR while intensifying the protection of company and shareholders, and learned both from USA and UK in company takeover aim and decision model, which in fact excused the management from duties for stakeholders. In China’s practice, it was paid more attention in protecting state owned shares, industry development, economic safe and national brands, and less in takeover defense for stakeholders through legal ways. Inner control and problems in system of state owned assets, triggered the fighting between the board of directors in target company and the acquirer. It is proposed to increase the power of management in company takeover and consolidate their duties for stakeholder to decrease the nonstandard claims in company takeovers.

Managerial Self-determination and Securities Fraud

Despite all the efforts to improve corporate governance, managers may not always act in the best interest of the owners of their firms. Their autonomy may give rise to behavior that is not approved by their firms’ owners or to behavior that is deemed fraudulent. Building on cognitive evaluation theory, we argue that monitoring and intervention by dedicated institutional investors and the pressure to meet analyst forecasts have an adverse influence on top managers’ perceived autonomy and perceived competence, decreasing their intrinsic motivation and increasing the likelihood of unethical behavior (measured by incidence of security fraud). In this regard we find that takeover defense provisions, as safeguard devices conducive to protecting top managers’ perceived autonomy, curtail the likelihood of committing securities fraud. In addition, we contend that high CEO power as a moderator reduces pressure from dedicated institutional investors and missed analyst forecasts to commit fraud. Such power also reinforces the negative influence of takeover defense provisions on fraud commitment. Using a sample of large U.S. companies, we find empirical support for most of our arguments.

How do entrenched boards reduce human rights violations? An empirical analysis

As part of corporate social responsibility, companies invest in activities that promote human rights or refrain from activities that violate human rights. Investments in human rights, however, usually do not yield immediate benefits. Rather, they are expected to improve the reputation of the firm over time as a good corporate citizen. As one of the most effective takeover defences, a staggered board insulates managers from the takeover market. Secured in their positions, managers are less likely to be myopic and are more likely to adopt policies that yield long-term benefits, such as investments in human rights. Consistent with this notion, our results show that firms with a staggered board exhibit much better human rights performance. We also show that our results are not likely driven by endogeneity.

The effect of entrenched boards on corporate risk-taking: testing the quiet life hypothesis

The quiet life hypothesis posits that entrenched managers are well insulated from removal and thus prefer to enjoy a quiet life, i.e. they tend to be less ambitious, avoid difficult decisions and engage in less risk-taking (Bertrand and Mullainathan, 2003). We utilize the staggered board (or classified board) to test this hypothesis. The staggered board is a powerful takeover defence that enables inefficient managers to evade the discipline of the takeover market, thereby exacerbating managerial entrenchment (Bebchuk and Cohen, 2005). We find that managers entrenched by the staggered board adopt significantly less risky strategies, consistent with the quiet life hypothesis. In particular, the presence of a staggered board reduces the volatility of stock returns by 4.46%. We also show that our conclusion is unlikely affected by the presence of endogeneity.

How Do Industry Peers Respond to Control Threats?

This paper studies how industry peers respond when another firm in the industry is the subject of a hostile takeover attempt. The industry peers cut their capital spending, free cash flows, and cash holdings, and increase their leverage and payouts to shareholders. They also adopt more takeover defenses. The stock price reaction upon announcement of the takeover is positive and larger for peer firms with higher capital spending and higher free cash flows. Before the takeover attempt, the peer firms borrow less and invest more than predicted. Both stock returns and performance improve after the takeover attempt. These results are consistent with the argument that the control threat has important spillover effects for the other firms in the industry. This paper was accepted by Wei Xiong, finance.

Takeover defenses, innovation, and value creation: Evidence from acquisition decisions

The desirability of antitakeover provisions (ATPs) is a contentious issue. ATPs might enable managerial empire building by insulating managers from disciplinary takeovers. However, some companies, such as �hard-to-value� (HTV) companies, might trade at a discount due to valuation difficulties, thereby exposing HTV companies to opportunistic takeovers and creating agency conflicts of managerial risk aversion. ATPs might ameliorate such managerial risk aversion by inhibiting opportunistic takeovers. This paper analyzes acquisitions made by HTV firms, focusing on whether the acquirer (not the target) is entrenched in order to examine the impact of entrenchment managerial decision making. The results show that HTV firms that are entrenched make acquisitions that generate more shareholder wealth and are more likely to increase corporate innovation, suggesting that ATPs can be beneficial in some firms.

Agents Unchained: The Determinants of Takeover Defenses in IPO Firms

Many companies continue to go public with takeover defenses even though institutional investors zealously oppose defenses in public companies. In this Article, I analyze the determinants of takeover defenses at IPO firms using an empirical analysis of 259 IPOs from 2008-12, interviews with numerous practitioners, and a survey of the corporate governance policies of significant investors. I find that the type of an issuer’s legal counsel’s M&A experience and the identity of pre-IPO shareholders explain much of the variation in takeover defenses at IPO firms. Companies advised by law firms with more target-side M&A experience adopt more defenses, while companies advised by law firms with more acquirer-side M&A experience adopt fewer defenses. Companies backed by venture capital funds are significantly more likely to adopt more takeover defenses. However, private equity backing has no effect on the pre-IPO adoption of staggered boards. Even though mutual funds and public pension funds are some of the most ardent opponents of takeover defenses in public companies, I find that issuers that they had invested in prior to the IPO almost always go public with robust takeover defenses in place. A comparison of issuers backed by Silicon Valley law firm Wilson Sonsini and New York law firm Simpson Thacher is particularly telling: Wilson Sonsini, a firm well known for its ties to the venture capital industry and its representation of targets, installed staggered boards in all of its IPO clients while Simpson Thacher, known for its private equity practice and acquirer representation, installed staggered boards in only 50% of its IPO clients. The lack of a consensus regarding the efficiency of defenses among the most experienced participants in the IPO market leads me to reject the idea that takeover defenses are generally optimal for pre-IPO shareholders.

How Do Entrenched Boards Reduce Human Rights Violations? An Empirical Analysis

As part of corporate social responsibility, companies invest in activities that promote human rights or refrain from activities that violate human rights. Investments in human rights, however, usually do not yield immediate benefits. Rather, they are expected to improve the reputation of the firm over time as a good corporate citizen. As one of the most effective takeover defenses, a staggered board insulates managers from the takeover market. Secured in their positions, managers are less likely to be myopic and are more likely to adopt policies that yield long-term benefits, such as investments in human rights. Consistent with this notion, our results show that firms with a staggered board exhibit much better human rights performance. We also show that our results are not likely driven by endogeneity.

The Effect of Entrenched Boards on Corporate Risk-Taking: Testing the Quiet Life Hypothesis

The quiet life hypothesis posits that entrenched managers are well-insulated from removal and thus prefer to enjoy a quiet life, i.e. they tend to be less ambitious, avoid difficult decisions, and engage in less risk-taking (Bertrand and Mullainathan, 2003). We utilize the staggered board (or classified board) to test this hypothesis. The staggered board is a powerful takeover defense that enables inefficient managers to evade the discipline of the takeover market, thereby exacerbating managerial entrenchment (Bebchuk and Cohen, 2005). We find that managers entrenched by the staggered board adopt significantly less risky strategies, consistent with the quiet life hypothesis. In particular, the presence of a staggered board reduces the volatility of stock returns by 4.46%. We also show that our conclusion is unlikely affected by the presence of endogeneity.

Lawyers and Fools: Lawyer-Directors in Public Corporations

The accepted wisdom — that a lawyer who becomes a corporate director has a fool for a client — is outdated. The benefits of lawyer-directors in today’s world significantly outweigh the costs. Beyond monitoring, they help manage litigation and regulation, as well as structure compensation to align CEO and shareholder interests. The results have been an average 9.5 percent increase in firm value and an almost doubling in the percentage of public companies with lawyer-directors. This Article is the first to analyze the rise of lawyer-directors. It makes a variety of other empirical contributions, each of which is statistically significant and large in magnitude. First, it explains why the number of lawyer-directors has increased. Among other reasons, businesses subject to greater litigation and regulation, and firms with significant intangible assets (such as patents) value a lawyer-director’s expertise. Second, this Article describes the impact of lawyer-directors on corporate monitoring. Among other results, it shows that lawyer-directors are more likely to favor a board structure and takeover defenses that reduce shareholder value — balanced, however, by the benefits of lawyer-directors, such as the valuable advice they can provide. Finally, this Article analyzes the significant reduction in risk-taking and the increase in firm value that results from having a lawyer on the board. Our findings fly in the face of requirements that focus on director independence. Our results show that board composition — and the training, skills, and experience that directors bring to managing a business — can be as or more valuable to the firm and its shareholders.

Comparative Company Law: A Case-Based Approach

1. A Case-Based Approach to Comparative Company Law David Cabrelli and Mathias Siems PART 1: DIRECTORS' DUTIES AND LIABILITY 2. General Case on Directors' Duties Theis Klauberg 3. Duties of Nominee Directors D Gordon Smith 4. Obligations of Directors in Takeovers Pablo Iglesias-Rodriguez 5. Cross-Border Takeovers and Takeover Defences Lena Nordman PART 2: CREDITOR PROTECTION 6. Piercing the Corporate Veil Hisaei Ito and Hiroyuki Watanabe 7. Capital Maintenance Michal Z?urek and Kamil Szmid PART 3: SHAREHOLDER PROTECTION 8. Shareholders and Shareholder Law Pierre-Henri Conac 9. Abuse of Shareholder Rights? Mathias Siems 10. Shareholders' Rights and Litigation David Cabrelli 11. Limitations on the Shareholder's Right to Transfer Shares Marco Ventoruzzo and Corrado Malberti PART 4: CONCLUSION 12. Form, Style and Substance in Comparative Company Law Mathias Siems and David Cabrelli