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The Life Cycle Effects of Corporate Takeover Defenses

Author

Listed:
  • William C Johnson
  • Jonathan M Karpoff
  • Sangho Yi

Abstract

We document that the relation between firm value and the use of takeover defenses is positive for young firms but becomes negative as firms age. This value reversal pattern reflects specific changes in the costs and benefits of takeover defenses as firms age and arises because defenses are sticky and rarely removed. Firms can attenuate the value reversal by removing defenses, but do so only when the defenses become very costly and adjustment costs are low. The value reversal explains previous mixed evidence about takeover defenses and implies that firm age proxies for takeover defenses’ heterogeneous impacts on firm value.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • William C Johnson & Jonathan M Karpoff & Sangho Yi, 2022. "The Life Cycle Effects of Corporate Takeover Defenses," The Review of Financial Studies, Society for Financial Studies, vol. 35(6), pages 2879-2927.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:6:p:2879-2927.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhab113
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    Citations

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    Cited by:

    1. Karpoff, Jonathan M. & Schonlau, Robert & Wehrly, Eric, 2022. "Which antitakeover provisions deter takeovers?," Journal of Corporate Finance, Elsevier, vol. 75(C).

    More about this item

    Keywords

    G34; K22; L14;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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