Takeover defenses and IPO firm value in the Netherlands

Peter Roosenboom and T. van der Goot

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: The central question of this study involves the relation between the use of takeover defenses and IPO firm value. We report that management frequently uses takeover defenses before taking the firm public. The use of takeover defenses is primarily motivated by managerial entrenchment. IPO investors anticipate potential conflict of interests with management and reduce the price they pay for the IPO shares if takeover defenses are adopted. Although managers internalize this cost of takeover defenses to the degree they own pre-IPO stock, they are likely to gain through private control benefits. Non-management pre-IPO owners lose. Their shares are worth less, but different from managers, they do not get offsetting private control benefits. We infer that managers use takeover defenses to protect private control benefits at non-management pre-IPO owners' expense.

Keywords: firm valuation; initial public offering; takeover defense (search for similar items in EconPapers)
JEL-codes: G12 G3 G34 M M41 (search for similar items in EconPapers)
Date: 2003-06-19
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Citations: View citations in EconPapers (3)

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