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Capital Structure and Corporate Control: The Effect of Antitakeover Statutes on Firm Leverage

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  • Gerald T. Garvey

    (Commerce and Business Administration, University of British Columbia,)

  • Gordon Hanka

    (Smeal College of Business Administration, Pennsylvania State University)

Abstract

We find that firms protected by "second generation" state antitakeover laws substantially reduce their use of debt, and that unprotected firms do the reverse. This result supports recent models in which the threat of hostile takeover motivates managers to take on debt they would otherwise avoid. An implication is that legal barriers to takeovers may increase corporate slack. Copyright The American Finance Association 1999.

Suggested Citation

  • Gerald T. Garvey & Gordon Hanka, 1999. "Capital Structure and Corporate Control: The Effect of Antitakeover Statutes on Firm Leverage," Journal of Finance, American Finance Association, vol. 54(2), pages 519-546, April.
  • Handle: RePEc:bla:jfinan:v:54:y:1999:i:2:p:519-546
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