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Do Antitakeover Provisions Spur Corporate Innovation? A Regression Discontinuity Analysis

  • Thomas J. Chemmanur and Xuan Tian
Abstract

We study the effect of antitakeover provisions (ATPs) on innovation. To establish causality, we use a regression discontinuity approach that relies on locally exogenous variation generated by shareholder proposal votes. We find a positive, causal effect of ATPs on innovation. This positive effect is more pronounced in firms that are subject to a larger degree of information asymmetry and operate in more competitive product markets. The evidence suggests that ATPs help nurture innovation by insulating managers from short-term pressures arising from equity markets. Finally, the number of ATPs contributes positively to firm value for firms involved in intensive innovation activities.

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Corresponding author
* Chemmanur (corresponding author), chemmanu@bc.edu, Boston College Carroll School of Management; Tian, tianx@pbcsf.tsinghua.edu.cn, Tsinghua University PBC School of Finance.
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We thank Jarrad Harford (the editor) and an anonymous referee for several valuable comments that helped to greatly improve this paper. We are grateful for comments and suggestions from Julian Atanassov, Ramin Baghai, Martijn Cremers, Jack He, Josh Lerner, Megan MacGarvie, Amit Seru, Jun Yang, seminar participants at Boston College and Indiana University, and conference participants at the 2012 American Finance Association annual meetings, the 2012 European Finance Association annual meetings, the 2011 Financial Intermediation Research Society conference, the 2011 conference on Economics of Entrepreneurship and Innovation, and the 2011 North American Econometric Society Winter Meetings. We thank Michael Flores and Fangzhou Liu for their research assistance. We remain responsible for all errors and omissions. Chemmanur acknowledges summer research support from Boston College and additional support from a Hillenbrand Distinguished Fellowship. Tian acknowledges financial support from the National Natural Science Foundation of China (Grant No. 71790591) and a Tsinghua University Research Grant (Grant No. 20151080451).

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