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Does protectionist anti-takeover legislation lead to managerial entrenchment?

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  • Frattaroli, Marc

Abstract

I study a protectionist anti-takeover law introduced in 2014 that covers a subset of all firms in the economy. The law decreased affected firms’ likelihood of becoming the target of a merger or acquisition and had a negative impact on shareholder value. There is no evidence that management of those firms subsequently altered firm policies in its interest. Investment, employment, wages, profitability, and capital structure remain unchanged. The share of annual CEO compensation consisting of equity instruments increased by 8.4 percentage points, suggesting that boards reacted to the loss in monitoring by the takeover market by increasing the pay-for-performance sensitivity.

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  • Frattaroli, Marc, 2020. "Does protectionist anti-takeover legislation lead to managerial entrenchment?," Journal of Financial Economics, Elsevier, vol. 136(1), pages 106-136.
    • Handle: RePEc:eee:jfinec:v:136:y:2020:i:1:p:106-136
    DOI: 10.1016/j.jfineco.2019.03.014
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    More about this item

    Keywords

    Protectionism; 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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