Do Takeover Laws Matter? Evidence from Five Decades of Hostile Takeovers
Dec. 1, 2014
Matthew D. Cain, Stephen B. McKeon and Steven Davidoff Solomon
Abstract:
This study evaluates the relation between 16 U.S. takeover laws and hostile takeover activity from 1965 to 2013. Using a hand-collected dataset of largely exogenous legal changes covering 198,845 firm years, we find that certain takeover laws, such as poison pill laws, have had an effect on takeover activity running counter to their original intent, in some instances actually correlating with increased hostile activity. We also provide evidence that our Takeover Index, constructed from the full array of takeover laws, provides a better measure of firms’ governance environment than prior studies that have focused almost exclusively on business combination statutes. We conclude by examining the relation between the Takeover Index, firm value, and takeover premiums, and find a non-linear effect across time vintages.