Journal of Financial and Quantitative Analysis Vol. 60 No. 1 2025

The Effect of Takeover Protection in Quiet Life and Bonding Firms

Eliezer M. Fich¹; Jarrad Harford²; Adam S. Yore³

¹ Drexel University LeBow College of Business Finance Department · ² University of Washington Michael G. Foster School of Business Department of Finance · ³ University of Missouri Trulaske College of Business Department of Finance

Abstract

Antitakeover measures are controversial because the evidence of their net effect on shareholders is mixed. We propose that, for many firms, the potential bonding benefits outweigh the agency costs of the quiet life, explaining the mixed results. We study business combination and poison pill laws as exogenous shocks to takeover vulnerability and use shareholder valuation of internal slack as an indicator of the net effect of takeover protection. Firms susceptible to quiet life agency problems exhibit a decrease in the market-assessed value of internal slack. Conversely, cash appreciates at companies where takeover protection bonds commitments with major counterparties.

DOI

10.1017/s0022109023001473

Volume

60

Issue

1

Pages

295-335

Language

en

Sources

bibtex:phds-export.bib crossref openalex

Cite

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