To assess the impact of an
antitakeover statute (ATS), one must
78) Like the
antitakeover statute at issue in CTS, the Minnesota law creates nonuniformity, but not an inconsistent burden.
For example, promoters might be attracted to California, which has no
antitakeover statute and has not yet validated an important type of poison pill.
This is so because it is a well-known fact of modern American business that Delaware offers quick and inexpensive incorporation, a low corporate tax burden, and flexibility in key corporate structural issues, including staggered terms for directors, limitations on appraisal rights, and an
antitakeover statute that promotes fair and efficient negotiation of mergers, to name a few.
Using this rationale, both studies conclude that firms that become subject to an
antitakeover statute (posited to reflect a reduction in the takeover threat) experience an increase in managerial slack, a conclusion that is consistent with the hypothesis that takeover threats keep managers on their toes.
Race-to-the-bottom theorists point to Maryland's Unsolicited Takeover Act of 1999--by far the most potent
antitakeover statute that has appeared to date--as the latest and most extreme manifestation of their view.
This analysis is consistent with the history of Delaware's
antitakeover statute.
TABLE 1: PROBABILITY OF BECOMING A HEDGE FUND TARGET AND STATE ANTITAKEOVER STATUTES This table presents the marginal effects estimates from logit regressions of the ex-ante probability of becoming a hedge fund target next year on different state
antitakeover statutes and firm- level controls as of the end of this year.
Qi and Wald (2008) determine that debt holders use more debt covenants to minimize agency costs when borrowers are incorporated in states with stronger
antitakeover statutes.
Capital Structure and Corporate Control: The Effect of
Antitakeover Statutes on Firm Leverage.
