Blood in the water: The value of antitakeover provisions during market shocks

Scott Guernsey; Simone M. Sepe; Matthew Serfling

doi:10.1016/j.jfineco.2021.12.009

Blood in the water: The value of antitakeover provisions during market shocks

Scott Guernsey, Simone M. Sepe, Matthew Serfling

Research output: Contribution to journal › Article › peer-review

9 Scopus citations

Abstract

During market-wide shocks that cause large drops in stock prices, firms with more state-endorsed antitakeover provisions (ATPs) experience smaller declines in value. Two channels appear to drive this finding. First, by giving boards more bargaining power to fight opportunistic bids, firms with more ATPs extract higher takeover premiums during market shocks. Second, having more ATPs attenuates the effect of market shocks on firm value by protecting relationship-specific investments with stakeholders from disruptive takeovers. Our results suggest that ATPs benefit shareholders during market shocks when firm values are abnormally low and represent one advantage of incorporating in states with more ATPs.

Original language	English (US)
Pages (from-to)	1070-1096
Number of pages	27
Journal	Journal of Financial Economics
Volume	143
Issue number	3
DOIs	https://doi.org/10.1016/j.jfineco.2021.12.009
State	Published - Mar 2022

Keywords

Antitakeover provisions
Firm value
Market shocks
Relationship-specific investments
Takeover premiums

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics
Strategy and Management

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10.1016/j.jfineco.2021.12.009

Cite this

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title = "Blood in the water: The value of antitakeover provisions during market shocks",

abstract = "During market-wide shocks that cause large drops in stock prices, firms with more state-endorsed antitakeover provisions (ATPs) experience smaller declines in value. Two channels appear to drive this finding. First, by giving boards more bargaining power to fight opportunistic bids, firms with more ATPs extract higher takeover premiums during market shocks. Second, having more ATPs attenuates the effect of market shocks on firm value by protecting relationship-specific investments with stakeholders from disruptive takeovers. Our results suggest that ATPs benefit shareholders during market shocks when firm values are abnormally low and represent one advantage of incorporating in states with more ATPs.",

keywords = "Antitakeover provisions, Firm value, Market shocks, Relationship-specific investments, Takeover premiums",

author = "Scott Guernsey and Sepe, {Simone M.} and Matthew Serfling",

note = "Funding Information: Bill Schwert was the editor for this article. We thank an anonymous referee, Tim Adam, Dhruba Banjade (discussant), Ginka Borisova, Ofar Eldar (discussant), Larry Fauver, Chitru Fernando, Sara Holland, Dalida Kadyrzhanova, Jan Keil, Bart Lambrecht, Scott Linn, Lubo Litov, Shu Liu (discussant), Tingting Liu, Saura Masconale, Bill Megginson, Andy Puckett, Sarah Shaikh, Jared Stanfield, Tracie Woidtke, and Jing Xie (discussant); seminar participants at Iowa State University, Hong Kong Polytech University, Humboldt University of Berlin, the University of Oklahoma, and the University of Tennessee; conference participants at the 2020 International Risk Management Conference, the 2021 American Law and Economics Association, the 2021 Financial Management Association, the 2021 French Finance Association, and the 2021 Midwest Finance Association for helpful comments and discussions; and Dipesh Bhattarai, Banks Osborne, and Miaoyin Zhang for excellent research assistance. Publisher Copyright: {\textcopyright} 2022",

year = "2022",

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doi = "10.1016/j.jfineco.2021.12.009",

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N2 - During market-wide shocks that cause large drops in stock prices, firms with more state-endorsed antitakeover provisions (ATPs) experience smaller declines in value. Two channels appear to drive this finding. First, by giving boards more bargaining power to fight opportunistic bids, firms with more ATPs extract higher takeover premiums during market shocks. Second, having more ATPs attenuates the effect of market shocks on firm value by protecting relationship-specific investments with stakeholders from disruptive takeovers. Our results suggest that ATPs benefit shareholders during market shocks when firm values are abnormally low and represent one advantage of incorporating in states with more ATPs.

AB - During market-wide shocks that cause large drops in stock prices, firms with more state-endorsed antitakeover provisions (ATPs) experience smaller declines in value. Two channels appear to drive this finding. First, by giving boards more bargaining power to fight opportunistic bids, firms with more ATPs extract higher takeover premiums during market shocks. Second, having more ATPs attenuates the effect of market shocks on firm value by protecting relationship-specific investments with stakeholders from disruptive takeovers. Our results suggest that ATPs benefit shareholders during market shocks when firm values are abnormally low and represent one advantage of incorporating in states with more ATPs.

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Blood in the water: The value of antitakeover provisions during market shocks

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Keywords

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