Do takeover laws matter? Evidence from five decades of hostile takeovers

Cain, Matthew D.; McKeon, Stephen B.; Solomon, Steven Davidoff

doi:10.1016/j.jfineco.2017.04.003

Cited by 322 publications

(433 citation statements)

References 42 publications

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“…Third, the evidence does not indicate that a large number of firms reincorporate to avoid or acquire coverage by state antitakeover laws (e.g., see Cremers and Sepe ()). Cain, McKeon, and Solomon (), for example, report that the large majority of reincorporations in their sample are to the firm's headquarters state, Delaware, or Nevada. Few reincorporations are to states such as Pennsylvania, which Gartman (), Szewczyk and Tsetsekos (), and others argue has the most manager‐friendly takeover environment.…”

Section: Political Economy and Selection Issuesmentioning

confidence: 99%

“…Our tests include controls for four important court decisions that affect firms’ takeover protections. Cain, McKeon, and Solomon (), in contrast, identify three other court decisions as having potentially large effects on firms’ takeover defenses, and Catan and Kahan () identify at least seven additional (typically lower) court decisions that potentially affect the legal status of state antitakeover laws and firms’ uses of poison pills. In the Internet Appendix, we report on tests that are analogous to those in Tables and that include controls for these additional court decisions.…”

Section: The Importance Of Institutional and Legal Context Concerns Imentioning

confidence: 99%

“…A second assumption in our test specification relates to which firms were affected by decisions rendered by the Delaware courts. Cain, McKeon, and Solomon () report that 55% of the firm‐years in their sample correspond to firms incorporated in Delaware, so Delaware court decisions directly affect the majority of large publicly traded firms. Delaware corporate law frequently leads, or becomes a template for, corporate law in other states.…”

Section: The Importance Of Institutional and Legal Context Concerns Imentioning

confidence: 99%

“…In related papers, Catan and Kahan () and Cain, McKeon, and Solomon () also pose questions about the use of state antitakeover laws to identify exogenous changes in firms’ takeover protections. Like our paper, both of these studies argue that state antitakeover laws are not adopted in an institutional vacuum and that legal context matters.…”

Section: Comments On An Extreme View Of Shadow Poison Pillsmentioning

confidence: 99%

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Institutional and Legal Context in Natural Experiments: The Case of State Antitakeover Laws

Karpoff¹,

Wittry²

2018

The Journal of Finance

223

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We argue and demonstrate empirically that a firm's institutional and legal context has first‐order effects in tests that use state antitakeover laws for identification. A priori, the size and direction of a law's effect on a firm's takeover protection depends on (i) other state antitakeover laws, (ii) preexisting firm‐level takeover defenses, and (iii) the legal regime as reflected by important court decisions. In addition, (iv) state antitakeover laws are not exogenous for many easily identifiable firms. We show that the inferences from nine prior studies related to nine different outcome variables change substantially when we include controls for these considerations.

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Section: Political Economy and Selection Issuesmentioning

confidence: 99%

Section: The Importance Of Institutional and Legal Context Concerns Imentioning

confidence: 99%

Section: The Importance Of Institutional and Legal Context Concerns Imentioning

confidence: 99%

Section: Comments On An Extreme View Of Shadow Poison Pillsmentioning

confidence: 99%

See 2 more Smart Citations

Institutional and Legal Context in Natural Experiments: The Case of State Antitakeover Laws

Karpoff¹,

Wittry²

2018

The Journal of Finance

223

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“…Third, while the state business combination laws, the focus of many U.S. studies, were a single class of various state‐level takeover statutes, the international M&A laws in our paper contain a broad spectrum of takeover provisions including, among others, the squeeze‐out rules mandated by the Takeover Act in Austria and the board neutrality rule provisioned in the Takeover Panel Act in Ireland. This distinction is important, as recent studies show that the state‐level business combination laws might not have had a discernible impact on takeover activity and corporate policies, casting doubt on the effectiveness of using the business combination laws alone in proxying for governance quality (Cain, McKeon, and Solomon [], Karpoff and Wittry []). Thus, international M&A laws, encompassing a more diverse set of statutes designed to reduce frictions in M&As, allow us to gain new insights into the effect of the market for corporate control.…”

Section: Introductionmentioning

confidence: 99%

International Mergers and Acquisitions Laws, the Market for Corporate Control, and Accounting Conservatism

Khurana

Wang

2018

J of Accounting Research

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Exploiting the staggered enactment of country‐level mergers and acquisitions (M&A) law as an exogenous increase in corporate takeover threat, this paper examines how a disciplinary market for corporate control affects accounting conservatism. Following M&A law adoption, we find increased accounting conservatism, with more pronounced effects in countries with weak shareholder protection and in those experiencing larger growth in takeover activity. Further analysis reveals that elevated takeover threats increase conservatism through changes in capital structure and investment decisions as well as improvements in board monitoring. Our findings highlight the importance of the market for corporate control in shaping financial‐reporting outcome.

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Carbon emissions, corporate governance, and hostile takeover threats

Tanthanongsakkun¹,

Kyaw²,

Treepongkaruna

et al. 2022

Bus Strat Env

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Exploiting a unique measure of takeover vulnerability principally based on state legislations, we investigate how corporate carbon reduction efforts are influenced by the takeover market, which is widely regarded as a crucial instrument of external corporate governance. Our results show that more takeover exposure brings about significantly greater efforts to reduce carbon emissions. A rise in takeover susceptibility by one standard deviation improves carbon reduction performance by 12.81%. The findings corroborate the notion that the takeover market, acting as an external governance mechanism, compels managers to adopt policies that benefit shareholders in the long run. Our results imply that carbon emissions are a crucial corporate outcome as it is subject to the pressure from the takeover market. Companies should pay a close attention to this matter. Further analysis robustly validates the results, including propensity score matching, entropy balancing, an instrumental variable analysis, and heteroscedastic identification. Our measure of takeover vulnerability is plausibly exogenous and thus probably reveals a causal effect, rather than a mere association.

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Do takeover laws matter? Evidence from five decades of hostile takeovers

Cited by 322 publications

References 42 publications

Institutional and Legal Context in Natural Experiments: The Case of State Antitakeover Laws

Institutional and Legal Context in Natural Experiments: The Case of State Antitakeover Laws

International Mergers and Acquisitions Laws, the Market for Corporate Control, and Accounting Conservatism

Carbon emissions, corporate governance, and hostile takeover threats

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