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Financial institution default frequencies and takeover defenses

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  • Elizabeth Webb
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    Abstract

    Purpose – The purpose of this paper is to examine the relationship between estimated default frequencies (EDFs) and a government index that proxies for takeover defense provisions for publicly-traded financial institutions from 2002 to 2004. Design/methodology/approach – Using a sample of publicly-traded financial institutions, the effect of anti-takeover provisions on EDFs was analyzed. Findings – It was found that financial institutions with multiple takeover defenses tend to have lower EDFs compared with those with fewer takeover defenses. This result is robust to a variety of specifications and is supportive of the wealth distribution hypothesis. Further, it appears that the result is primarily driven by non-depository institutions. This may imply that regulation of depository institutions mitigates takeover defense effects on managerial behavior. Originality/value – This paper adds to the corporate finance literature, which reports mixed findings on the relationships between takeover defenses and firm value.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Studies in Economics and Finance.

    Volume (Year): 24 (2007)
    Issue (Month): 4 (September)
    Pages: 286-296

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    Handle: RePEc:eme:sefpps:v:24:y:2007:i:4:p:286-296

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    Related research

    Keywords: Corporate governance; Default; Financial institutions; Take-overs;

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    Cited by:
    1. Fabel, Oliver & Kolmar, Martin, 2012. "Do parachutes discipline managers? An analysis of takeover battles," International Review of Law and Economics, Elsevier, vol. 32(2), pages 224-232.

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