How powerful CEOs adopt antitakeover provisions?

ABSTRACT

We investigate how powerful chief executive officers (CEOs) adopt antitakeover provisions (ATPs). Prior studies indicate that CEOs adopt ATPs to increase their private benefits and job security. However, our evidence reveals a nonmonotonic relationship between CEO power and ATPs. Specifically, relatively less powerful CEOs adopt more ATPs, supporting the managerial entrenchment hypothesis. However, when CEOs become sufficiently powerful, they adopt fewer ATPs, supporting the quiet life hypothesis. Overall, our findings support the notion that a simple linear relationship does not explain the effect of CEO power.

KEYWORDS:

• Antitakeover provisions
• CEO power
• Managerial entrenchment hypothesis
• Quiet life hypothesis

JEL CLASSIFICATION:

• G30
• G34

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Our dataset ends in 2007 considering data availability for the ATP variables in the ISS database. E-INDEX is based on the Legacy version of ISS because it changed its data collection in 2007 after acquiring the IRRC in 2005.

² Following Bebchuk, Cohen, and Ferrell (2009), we adopt the prior year’s value to complete the missing data for some firm-years.

³ The degree of CPS selected by firms can be non-random.

⁴ The remaining firm-year observations were used as the control group.

⁵ In untabulated tests, we re-estimate the probit regressions with the matched samples. All coefficients are statistically insignificant, verifying that the observable differences in firm characteristics was removed successfully.

Additional information

Funding

Junyoup Lee’s work was supported by the Human Resources Program in Energy Technology of the Korea Institute of Energy Technology Evaluation and Planning (KETEP) and the Ministry of Trade, Industry & Energy, Republic of Korea under Grant [No. 20184010201680].