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Does Protectionist Anti-Takeover Legislation Lead to Managerial Entrenchment?

Author

Listed:
  • Marc Frattaroli

    (Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute)

Abstract

I study a protectionist anti-takeover law introduced in 2014 that covers a subset of all firms in the economy. The law had a negative impact on shareholder value and substantially reduced affected firms' likelihood of becoming a takeover target. There is no evidence that management of those firms subsequently altered firm policies in its interest. Investment, employment, wages, profitability, financial leverage and distributions to shareholders remain unchanged. The share of annual CEO compensation consisting of equity instruments increased by 9.4 percentage points, suggesting that boards reacted to the loss in monitoring by the takeover market by increasing the pay-for-performance sensitivity.

Suggested Citation

  • Marc Frattaroli, 2017. "Does Protectionist Anti-Takeover Legislation Lead to Managerial Entrenchment?," Swiss Finance Institute Research Paper Series 17-66, Swiss Finance Institute, revised Apr 2018.
    • Handle: RePEc:chf:rpseri:rp1766
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    More about this item

    Keywords

    Protectionism; Anti-Takeover Legislation; Corporate Governance; Mergers and Acquisitions; Executive Compensation; Free Cash Flow Problem;
    All these keywords.

    JEL classification:

    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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