Takeover Defenses of IPO Firms


  • Laura Casares Field,

  • Jonathan M. Karpoff

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    • Field is from Penn State University and Karpoff is from the University of Washington. We thank Morris Danielson; Rob Daines; Larry Dann; Rick Green; Gordon Hanka; Jarrad Harford; Robert Kieschnick; Michael Klausner; Michelle Lowry; Ron Masulis; Chris Muscarella; Scott Lee; John Lott; Paul Malatesta; Todd Perry; Dennis Sheehan; René Stulz; and an anonymous referee for helpful comments; as well as seminar participants at the University of Arizona, California State University, Northridge, the University of Connecticut, the Dartmouth-JFE Conference on Corporate Governance, the University of Delaware, Emory University, the 2000 FMA meetings, the University of Oregon, Penn State University, the University of Texas at Dallas, the University of Utah, Vanderbilt University, and especially Harold Mulherin. We also thank Vera Allain, Christopher Reed, and Lloyd Taliaferro for research assistance, and The Institute for Quantitative Research in Finance for financial support.


Many firms deploy takeover defenses when they go public. IPO managers tend to deploy defenses when their compensation is high, shareholdings are small, and oversight from nonmanagerial shareholders is weak. The presence of a defense is negatively related to subsequent acquisition likelihood, yet has no impact on takeover premiums for firms that are acquired. These results do not support arguments that takeover defenses facilitate the eventual sale of IPO firms at high takeover premiums. Rather, they suggest that managers shift the cost of takeover protection onto nonmanagerial shareholders. Thus, agency problems are important even for firms at the IPO stage.