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Takeover Protections and Asset Prices

Author

Listed:
  • Assaf Eisdorfer

    (School of Business, University of Connecticut, Storrs, Connecticut 06269)

  • Erwan Morellec

    (Ecole Polytechnique Fédérale de Lausanne, 1015 Lausanne, Switzerland; Swiss Finance Institute, 1205 Geneve, Switzerland; Center for Economic Policy Research, London EC1V 0DX, United Kingdom)

  • Alexei Zhdanov

    (Smeal College of Business, Penn State University, University Park, Pennsylvania 16802)

Abstract

We study the effects of takeover feasibility on asset prices and returns in a unified framework. We show theoretically that takeover protections increase equity risk, stock returns, and bond yields by removing a valuable put option to sell the firm, notably for firms approaching distress. We investigate these claims empirically and find that distressed firms experience a significant decrease in value and increase in returns and market betas after the passage of antitakeover laws, in line with our predictions. At issue bond yields are also higher when an antitakeover law is in effect. Consistent with the model, the effects of antitakeover laws on stock returns, respectively, bond yields, are greater when shareholders, respectively, bondholders, have greater bargaining power.

Suggested Citation

  • Assaf Eisdorfer & Erwan Morellec & Alexei Zhdanov, 2024. "Takeover Protections and Asset Prices," Management Science, INFORMS, vol. 70(11), pages 8116-8133, November.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:11:p:8116-8133
    DOI: 10.1287/mnsc.2022.03111
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