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

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

Abstract

This study evaluates the relation between hostile takeovers and 17 takeover laws from 1965 to 2014. Using a data set of largely exogenous legal changes, we find that certain takeover laws, such as poison pill and business combination laws, have no discernible impact on hostile activity, while others such as fair price laws have reduced hostile takeovers. We construct a Takeover Index from the laws and find that higher takeover protection is associated with lower firm value, consistent with entrenchment and agency costs. However, conditional on a bid, firms with more protection achieve higher premiums, consistent with increased bargaining power.

Suggested Citation

  • Cain, Matthew D. & McKeon, Stephen B. & Solomon, Steven Davidoff, 2017. "Do takeover laws matter? Evidence from five decades of hostile takeovers," Journal of Financial Economics, Elsevier, vol. 124(3), pages 464-485.
  • Handle: RePEc:eee:jfinec:v:124:y:2017:i:3:p:464-485
    DOI: 10.1016/j.jfineco.2017.04.003
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    1. repec:eee:corfin:v:49:y:2018:i:c:p:104-119 is not listed on IDEAS
    2. repec:eee:corfin:v:47:y:2017:i:c:p:46-71 is not listed on IDEAS

    More about this item

    Keywords

    Hostile takeovers; Corporate governance; Mergers and acquisitions; Law;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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