The Lifecycle Effects of Corporate Takeover Defenses
Forthcoming, The Review of Financial Studies
European Corporate Governance Institute – Finance Working Paper 761/2021
67 Pages Posted: 13 Jul 2016 Last revised: 12 Jul 2021
Date Written: July 5, 2021
Abstract
We document that the relation between firm value and the use of takeover defenses is positive for young firms but becomes negative as firms age. This value reversal pattern reflects specific changes in the costs and benefits of takeover defenses as firms age and arises because defenses are sticky and rarely removed. Firms can attenuate the value reversal by removing defenses, but do so only when the defenses become very costly and adjustment costs are low. The value reversal explains previous mixed evidence about takeover defenses and implies that firm age proxies for takeover defenses’ heterogeneous impacts on firm value.
Keywords: Takeover defenses, antitakeover provisions, value reversal, lifecycle
JEL Classification: G34, K22, L14
Suggested Citation: Suggested Citation