Does Protectionist Anti-Takeover Legislation Lead to Managerial Entrenchment?

Marc Frattaroli
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Marc Frattaroli: Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute

No 17-66, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: I study a protectionist anti-takeover law introduced in 2014 that covers a subset of all firms in the economy. The law had a negative impact on shareholder value and substantially reduced affected firms' likelihood of becoming a takeover target. There is no evidence that management of those firms subsequently altered firm policies in its interest. Investment, employment, wages, profitability, financial leverage and distributions to shareholders remain unchanged. The share of annual CEO compensation consisting of equity instruments increased by 9.4 percentage points, suggesting that boards reacted to the loss in monitoring by the takeover market by increasing the pay-for-performance sensitivity.

Keywords: Protectionism; Anti-Takeover Legislation; 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)
Pages: 55 pages
Date: 2017-08, Revised 2018-04
New Economics Papers: this item is included in nep-bec and nep-cfn
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1766

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