Do Antitakeover Provisions Prmote Or Impede Corporate Innovation Activities?

Since 2014,the control contest between Baoneng and Vanke has set the trend of China’s listed companies adopting antitakeover provisions in their corporate bylaws.This trend arouses widespread concern about whether these antitakeover provisions bring long-term benefits to company development.Theoretical debate about the use of antitakeover provisions provides different views for this question and the empirical evidence is mixed.R&D is regarded as the most essential source of long-term competitive advantage for the firm and the economy.R&D requires substantial financial and human-capital investment and is heavily influenced by managerial incentives,which can be affected by the use of antitakeover provisions.Understanding how the adoption of antitakeover provisions will change the firm’s R&D activity is an important part in understanding the long-term consequences of antitakeover provision adoption trend of China’s listed firms.Using A-share listed companies that has made antitakeover provision amendments during 2014-2016 as the treatment group and employing the propensity score matching and difference-in-differences(PSM-DID)approach,this paper analyzes the impact of antitakeover provisions on firm R&D activities.Empirical tests show that after antitakeover provision amendments,firms show reduced R&D investment compared to firms without antitakeover provisions,indicating managerial slack after the adoption of antitakeover provision in support of "managerial entrenchment argument.”This effect of antitakeover provisions on R&D appears to interact with internal governance structure,stronger in firms with chairperson and CEO duality,but is mediated by the use of top management incentive plan.These results are robust to a battery of robustness checks including matching methods,variable measurement,etc.Additional tests show that patent application drops after antitakeover provision amendments;the effect of antitakeover provisions on R&D seems not to vary with different types of antitakeover provisions.The relationship between antitakeover provisions and firm R&D appears to be weaker when the firm is non-state-owned,when the product market is competitive,or outside governance mechanism,such as auditor and analyst following,is stronger.This last result suggests that external governance mechanisms such as auditor and analysts can interplay with internal governance weakness and alleviating the managerial slack caused by the adoption of antitakeover provisions.Overall,these results suggest that antitakeover provisions impose a slack on R&D and thus may affect firm’s long-term development.This paper adds to the understanding of the long-term economic consequences of antitakeover provisions of China’s listed companies,as well as the determinants of firm R&D activity;it also offers practical implications for the firm,regulation agency and the investor regarding the use of antitakeover provisions.