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Why do takeover targets protect acquirers? Evidence from force‐the‐vote provisions

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  • Sridhar Gogineni
  • John Puthenpurackal

Abstract

We conduct the first comprehensive study of force‐the‐vote (FTV) provisions in mergers and acquisitions transactions and test competing agency and efficient contracting explanations for their usage. Target FTV provisions are observed more frequently when bidding is costly and are associated with higher target returns, a lower likelihood of competing bids, and a higher likelihood of deal completion. By providing greater deal protection to acquirers, target FTV provisions appear to improve bidding incentives resulting in higher target returns consistent with efficient contracting. Our results are robust to controlling for other merger provisions, such as termination fee provisions, stock voting agreements, and endogeneity concerns.

Suggested Citation

  • Sridhar Gogineni & John Puthenpurackal, 2021. "Why do takeover targets protect acquirers? Evidence from force‐the‐vote provisions," Financial Management, Financial Management Association International, vol. 50(3), pages 805-843, September.
    • Handle: RePEc:bla:finmgt:v:50:y:2021:i:3:p:805-843
    DOI: 10.1111/fima.12312
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    References listed on IDEAS

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