The Impact of Takeover Defenses on Managerial Discipline and Takeover Activity
Autor: Nartai • March 19, 2013 • Research Paper • 9,295 Words (38 Pages) • 1,404 Views
The Impact of Takeover Defenses on Managerial
Discipline and Takeover Activity
JEAN-BAPTISTE HECQUET*
ABSTRACT
The effects of antitakeover amendments have shown conflicting results in
the literature. This paper investigates the impact of takeover defenses on
managerial discipline, premiums and takeover activity. If takeover defenses
seem to discipline IPO managers, the evidence is consistent with the
hypothesis that antitakeover techniques only serve the self-interests of
managers of mature companies. Furthermore, the study does not support that
antitakeover amendments have any impact on takeover premiums and shows
that the presence of defenses is negatively related to takeover activity. The
empirical analysis conducted on white knights premiums leads to the same
conclusion. Thus, shareholders do not benefit from antitakeover techniques
and takeover defenses fail to properly answer the agency problem.
AFTER MANY YEARS OF RESEARCH on the impact of takeover defenses on
shareholders’ wealth, there is still little consensus on the conclusions of such a
topic. For instance, DeAngelo and Rice (1983) report statistically insignificant
negative abnormal return surrounding the amendments proposals while Mc
Williams (1990) finds significant positive effect for firms having low levels of
managerial share ownership (ten percents or less) which is significantly larger
than negative effects observed at higher level of share ownership. However, if
Sundaramurthy, Mahoney and Mahoney (1997) find a negative market
reaction to antitakeover provisions, they show no statistically significant stock
price effect of inside ownership. Moreover, they find that the market reacts
more negatively to antitakeover provisions adopted by outsider-dominated
boards than to antitakeover adopted by boards with fewer outsiders which is
* Specialized Master in Finance, ESCP Europe. This paper is based on a dissertation written at
ESCP Europe. I would like to thank
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