This paper decomposes the expected takeover premium from adopting an anti-takeover provision into three components (a causal effect on the takeover probability; a causal effect on the premium paid; and a selection effect) and provides causal evidence on each of those, thus being able to ascertain the contribution of each to shareholder value creation from takeovers.
Using data on shareholder-sponsored proposals to remove an anti-takeover provision voted on in annual meetings of S&P 1500 firms between 1994 and 2013, we extend the regression discontinuity design using the approach in Angrist and Rokkanen (2014) to provide causal estimates that do not rely only on firms around the discontinuity. In order to account for selection in observed mergers we estimate sharp bounds for the causal effect of anti-takeover provisions on the takeover premium (Lee, 2009).
For an average firm, voting to remove an anti-takeover provision leads to a 4.5% higher probability of being taken over and a 2.8% higher expected unconditional takeover premium. We also find evidence that increased competition in takeover contests is one driver of the estimated increased premium for firms that remove an anti-takeover provision. Finally, we show that 53% of the shareholder gains come from the increased probability of a takeover, with also significant shares for selection and premium effects.
Pritzker Professor of Law and Business
Nicholas J. Chabraja Professor
Northwestern University School of Law and Kellogg School of Management