Intensity of Takeover Defenses: The Empirical Evidence

Abstract

This paper focuses on the construction of an index of the intensity of firms’ antitakeover defenses. While many aspects of corporate behavior are qualitative in nature, an evaluation of a firm’s stance and the underlying motives for its behavior often depend on the elements of a set of qualitative factors. The interactions beween these factors are likely to have important implications. In this context, only a composite measure will capture these interactions and their implications for firms’ actions. We focus on the creation of an ordinal measure of anti-takeover defenses and utilize the ordered probit estimation technique to relate the magnitude of this measure to the motives for instituting these defenses. Our estimates are generally supportive of the managerial entrenchment hypothesis.

We thank Robert Taggart, Jr., Richard Arnott, Stephen Polasky, seminar participants at Université du Québec à Montréal, and participants in the 1992 meetings of the Society for Economic Dynamics and Control and the Financial Management Association for their valuable comments, criticisms and many insightful discussions. The usual disclaimer applies.