Takeover Protections and Stock Returns

Assaf Eisdorfer, Erwan Morellec and Alexei Zhdanov
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Assaf Eisdorfer: University of Connecticut - Department of Finance
Erwan Morellec: Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute
Alexei Zhdanov: Pennsylvania State University

No 20-105, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We argue that takeover protections increase equity risk and stock returns by removing a valuable put option to sell equity when firms approach financial distress. We investigate these claims empirically by looking at the risk and return dynamics of distressed firms around the enactment of anti-takeover laws, both domestically and internationally. In line with our predictions, we find that distressed firms experience a significant increase in returns and market betas after the passage of anti-takeover laws. We find no such effects in the full sample of firms.

Pages: 59 pages
Date: 2020-10
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp20105

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