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Takeover defenses and IPO firm value in the Netherlands

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  • Roosenboom, P.G.J.
  • van der Goot, T.

Abstract

The central question of this study involves the relation between the use of takeover defenses and IPO firm value. We report that management frequently uses takeover defenses before taking the firm public. The use of takeover defenses is primarily motivated by managerial entrenchment. IPO investors anticipate potential conflict of interests with management and reduce the price they pay for the IPO shares if takeover defenses are adopted. Although managers internalize this cost of takeover defenses to the degree they own pre-IPO stock, they are likely to gain through private control benefits. Non-management pre-IPO owners lose. Their shares are worth less, but different from managers, they do not get offsetting private control benefits. We infer that managers use takeover defenses to protect private control benefits at non-management pre-IPO owners' expense.

Suggested Citation

  • Roosenboom, P.G.J. & van der Goot, T., 2003. "Takeover defenses and IPO firm value in the Netherlands," ERIM Report Series Research in Management ERS-2003-049-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    • Handle: RePEc:ems:eureri:433
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    Cited by:

    1. Huisman, R. & Huurman, C., 2003. "Fat Tails in Power Prices," ERIM Report Series Research in Management ERS-2003-059-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    2. Johan, Sofia A., 2010. "Listing standards as a signal of IPO preparedness and quality," International Review of Law and Economics, Elsevier, vol. 30(2), pages 128-144, June.
    3. Peter Roosenboom & Tjalling van der Goot, 2006. "Broad-based employee stock options grants and IPO firms," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1343-1351.

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    More about this item

    Keywords

    firm valuation; initial public offering; takeover defense;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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