THE EFFECTS OF GOVERNANCE PROVISIONS ON TAKEOVER VULNERABILITY AND MANAGERIAL ENTRENCHMENT
Open Access
- Author:
- Sokolyk, Tatyana V.
- Graduate Program:
- Business Administration
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- May 16, 2007
- Committee Members:
- William Kracaw, Committee Chair/Co-Chair
Laura B Field, Committee Chair/Co-Chair
N Edward Coulson, Committee Member
George David Haushalter, Committee Member - Keywords:
- anti-takeover provisions
managerial entrenchment
corporate governance - Abstract:
- Recent studies document that governance provisions reduce shareholder value and increase agency costs. Several studies use the index of 24 governance provisions (G-Index) as a measure of takeover protection and managerial entrenchment. However, prior studies of individual takeover defenses, included in the G-Index, provide mixed evidence as to their ability to deter takeovers. Furthermore, there is no empirical evidence that managers of firms with a high number of governance provisions are protected from the discipline of the takeover market or from the discipline imposed by the board of directors. This dissertation examines how governance provisions affect firms’ takeover vulnerability and managerial entrenchment. Chapter 1 shows that the G-Index is not significant in explaining the likelihood of being acquired. However, some individual provisions exhibit strong but opposing effects on takeover probability. Grouping provisions that relate to takeover activity in a separate index, accounting for their directional effects, shows the significance of takeover defenses in predicting the takeover likelihood. Chapter 2 shows that the G-Index does not effectively measure managerial entrenchment. CEOs of firms with a high number of provisions are as likely to be replaced following value-reducing acquisitions as are CEOs of firms with a low number of provisions. However, the acquiring CEOs of firms with staggered boards are less likely to face external discipline imposed by the market for corporate control for making value-reducing acquisitions than are acquiring CEOs of firms with annually elected boards. This suggests that the staggered board indicator does proxy for managerial entrenchment. Finally, CEOs of firms less vulnerable to corporate takeovers are more likely to face discipline from internal governance (board of directors) than are CEOs of firms more vulnerable to takeovers. The main contribution of this dissertation to the existing academic literature is that it shows that the aggregate index of provisions does not measure either takeover protection or managerial entrenchment, and it suggests how researchers could use governance provisions to measure takeover vulnerability and managerial entrenchment.