The effect of the portfolio of takeover provisions on operating performance, takeovers, and takeover premiums

The active takeover market of the 1980s coincides with a period of active takeover provision adoption. There are competing theories about whether shareholders benefit or are harmed by the adoption of takeover provisions. I investigate how the adoption and presence of takeover provisions affect operating performance, takeover frequency, and takeover premia for S&P 500 firms between 1984 and 1995. In addition to analyzing individual provisions, I also explore whether the combination of certain provisions is an important determinant of the effect. Weak univariate evidence suggests that operating performance improves subsequent to provision adoption. Univariate and probit analyses suggest that the presence of certain takeover provisions has a deleterious effect on the likelihood of acquisition and pooled time-series cross-section evidence suggests that the detrimental impact of the decline in takeover likelihood generally overwhelms any increase in takeover premium for S&P 500 firms. I find that endogeneity inherent in the decision to adopt provisions is not severe for S&P 500 firms, which stands in contrast with evidence in the literature for a broader sample of firms. Overall, I interpret this evidence as suggesting that takeover provisions are detrimental to shareholders of S&P 500 firms.