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Financial institution default frequencies and takeover defenses

Author

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  • Elizabeth Webb

Abstract

Purpose - The purpose of this paper is to examine the relationship between estimated default frequencies (EDFs) and a government index that proxies for takeover defense provisions for publicly-traded financial institutions from 2002 to 2004. Design/methodology/approach - Using a sample of publicly-traded financial institutions, the effect of anti-takeover provisions on EDFs was analyzed. Findings - It was found that financial institutions with multiple takeover defenses tend to have lower EDFs compared with those with fewer takeover defenses. This result is robust to a variety of specifications and is supportive of the wealth distribution hypothesis. Further, it appears that the result is primarily driven by non-depository institutions. This may imply that regulation of depository institutions mitigates takeover defense effects on managerial behavior. Originality/value - This paper adds to the corporate finance literature, which reports mixed findings on the relationships between takeover defenses and firm value.

Suggested Citation

  • Elizabeth Webb, 2007. "Financial institution default frequencies and takeover defenses," Studies in Economics and Finance, Emerald Group Publishing, vol. 24(4), pages 286-296, October.
  • Handle: RePEc:eme:sefpps:v:24:y:2007:i:4:p:286-296
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    Cited by:

    1. Fabel, Oliver & Kolmar, Martin, 2012. "Do parachutes discipline managers? An analysis of takeover battles," International Review of Law and Economics, Elsevier, vol. 32(2), pages 224-232.

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