Antitakeover provisions and firm value: New evidence from the M&A market

Paul Momtaz, Wolfgang Drobetz
2020 Journal of Corporate Finance  
New evidence from acquisition decisions suggests that antitakeover provisions (ATPs) may increase firm value when internal corporate governance is sufficiently strong. We document that, in Germany, firms with stronger ATPs, and particularly supermajority provisions, are better acquirers. Managers of high-ATP firms create value in acquisitions by making governance-improving deals. They are more likely to engage in acquisitions that reduce their own entrenchment level and less likely to invest in
more » ... declining industries. The empirical evidence is consistent with a short-termist interpretation. Takeover threats can induce myopic investment decisions, which ATPs can mitigate. They also lead managers to engage more often in value-creating long-term and innovative investing, and increase their sensitivity to investment opportunities. Our findings contribute to a growing literature challenging conventional wisdo m that the agency-increasing effect of ATPs empirically dominates the myopia-eliminating effect, suggesting that a more contextual view of the value implications of ATPs is necessary.
doi:10.1016/j.jcorpfin.2020.101594 fatcat:kgjz5g5xb5dxfbopqftp3kszxq