Do Anti-Takeover Provisions Spur Corporate Innovation?

Abstract

We study the relation between antitakeover provisions (ATPs) and corporate innovation, and show that ATPs affect firm value through a novel "innovation channel." We find that firms with a larger number of ATPs are more innovative. To establish causality, we use a regression discontinuity approach relying on "locally" exogenous variation in the number of ATPs generated by governance proposal votes that pass or fail by a small voter margin, as well as an instrumental variable approach. The evidence suggests that ATPs spur innovation and thus allow long-run value creation by insulating managers from short-term pressures arising from the equity market.

Takeover protection and managerial myopia: Evidence from real earnings management

“…To the contrary, our evidence suggests a potential benefit of takeover protection to shareholders. Consistent with this, Chemmanur and Tian (2010) also document evidence that takeover protection increases firms' innovation productivity. Even so, our results do not necessarily imply that takeover protection measures are in any sense net-beneficial to shareholders.…”

Corporate Governance and Business Strategies for Climate Change and Environmental Mitigation

“…However, while we suspect that entrenched boards and managers will pursue short-term objectives, it is possible that entrenchment could allow boards and managers to pursue long-term objectives. For example, Chemmanur and Tian (2011) show that anti-takeover measures can actually promote value-enhancing innovation. To pursue this investigation we need a reliable measure of corporate entrenchment.…”

R&D and the Incentives from Merger and Acquisition Activity

“…We do not model agency conflicts nor anti-takeover amendments that are common for larger firms that may be subject to conflicts between managers and shareholders. See Atanassov (2009) and Chemmanur and Tian (2010) for articles that deal with anti-takeover devices or laws. The anti-takeover laws passed in the U.S. apply more to large firm takeovers in more mature industries as they reduce post-acquisition asset sales and are thus not relevant for acquisitions of smaller innovative firms.…”