State antitakeover legislation and firm financial policy

In the wake of numerous hostile corporate takeover attempts in the 1980s, many states enacted antitakeover legislation, often as a direct response to a particular takeover effort in the specific state. A number of empirical studies assess the impact of such statutes on firm value using traditional event methodology. While the event type research may capture the immediate market assessment of the impact of such legislation, the legislation can affect longer term financial policies of the affected firms. Theorists have speculated that firms less exposed to a takeover threat are more likely to pursue a longer term investment strategy, that leverage may substitute for or complement other existing takeover defenses, and that protected firms may require additional external monitoring. The results of this study indicate that protected firms increase both capital expenditures and R&D relative to assets and sales. Further, there are increases in dividends but only small changes in leverage. Firms with antitakeover amendments in place prior to the legislation show lower increases in capital spending and R&D, and modest evidence of a greater tendency to increase debt levels. While these results indicate that the laws influence subsequent firm strategy, that does not necessarily mean that these changes in policy improve firm value. © 1997 John Wiley & Sons, Ltd.