Anti-takeover provisions are major governance mechanisms that affect firm value. It is often argued that they allow managers to bargain for a higher price in the event of a hostile takeover at the expense of reducing or delay the possibility of a takeover. However, there is little causal evidence on this trade-off.
Our paper, Price and Probability: Decomposing the Takeover Effects of Anti-Takeover Provisions, is the first to provide estimates of this trade-off that can be interpreted as causal, and not simple correlations. First, we show by how much takeovers are deterred when firms are protected. Second, we provide evidence that takeover premiums are lower when firms are more protected—which reverses the commonly held view that anti-takeover provisions increase takeover premiums by giving managers more bargaining power.
