Does protectionist anti-takeover legislation lead to managerial entrenchment?

Marc Frattaroli

Journal of Financial Economics, 2020, vol. 136, issue 1, 106-136

Abstract: I study a protectionist anti-takeover law introduced in 2014 that covers a subset of all firms in the economy. The law decreased affected firms’ likelihood of becoming the target of a merger or acquisition and had a negative impact on shareholder value. There is no evidence that management of those firms subsequently altered firm policies in its interest. Investment, employment, wages, profitability, and capital structure remain unchanged. The share of annual CEO compensation consisting of equity instruments increased by 8.4 percentage points, suggesting that boards reacted to the loss in monitoring by the takeover market by increasing the pay-for-performance sensitivity.

Keywords: Protectionism; Corporate governance; Mergers and acquisitions; Executive compensation; Free cash flow problem (search for similar items in EconPapers)
JEL-codes: F52 G34 G38 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:136:y:2020:i:1:p:106-136

DOI: 10.1016/j.jfineco.2019.03.014

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