Do Antitakeover Provisions Spur Corporate Innovation? A Regression Discontinuity Analysis

We study the effect of antitakeover provisions (ATPs) on innovation. To establish causality, we use a regression discontinuity approach that relies on locally exogenous variation generated by shareholder proposal votes. We find a positive, causal effect of ATPs on innovation. This positive effect is...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2018-06, Vol.53 (3), p.1163-1194
Main Authors: Chemmanur, Thomas J., Tian, Xuan
Format: Article
Language:English
Subjects:
Asymmetric information
Asymmetry
Causality
Discontinuity
Econometrics
Equity
Hypotheses
Innovations
Markets
Meetings
Moral hazard
Public companies
Quantitative analysis
Shareholder voting
Stockholders
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Summary:We study the effect of antitakeover provisions (ATPs) on innovation. To establish causality, we use a regression discontinuity approach that relies on locally exogenous variation generated by shareholder proposal votes. We find a positive, causal effect of ATPs on innovation. This positive effect is more pronounced in firms that are subject to a larger degree of information asymmetry and operate in more competitive product markets. The evidence suggests that ATPs help nurture innovation by insulating managers from short-term pressures arising from equity markets. Finally, the number of ATPs contributes positively to firm value for firms involved in intensive innovation activities.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109018000029