The white squire defense: Evidence from private investments in public equity

Sheng-Syan Chen, Ching-Yu Hsu and Chia-Wei Huang

Journal of Banking & Finance, 2016, vol. 64, issue C, 16-35

Abstract: Firms can effectively stave off outside takeover bids using private investments in public equity (PIPEs) when they face strong takeover pressure. Greater takeover pressure makes PIPE issuers more likely to grant investors large blocks of shares, price discounts, generous dividends, and board seats. Takeover pressure also encourages issuers to place more shares with friendly investors such as managerial investors and strategic alliance investors. The evidence is consistent with the regular methods of the white squire defense. PIPEs can be a preferred method in the choice of a white squire defense when poorly performing and highly overleveraged firms face severe takeover pressure. There is a negative relation between takeover probability and post-issue performance of issuers, which supports the managerial entrenchment hypothesis over the shareholder interest hypothesis. Therefore PIPEs can increase, not mitigate, agency problems.

Keywords: White squire; Takeover defense; Private investment in public equity (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:64:y:2016:i:c:p:16-35

DOI: 10.1016/j.jbankfin.2015.11.017

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