Do Hostile Takeovers Stifle Innovation? Evidence from Antitakeover Legislation and Corporate Patenting



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    • Atanassov is with the Department of Finance, Lundquist College of Business, University of Oregon. I would like to thank the Editor (Campbell Harvey), the anonymous Associate Editor, the two anonymous referees, Sreedhar Bharath, Larry Dann, Amy Dittmar, Diane Del Guercio, Charles Hadlock, E. Han Kim, Wayne Mikkelson, Vikram Nanda, Megan Partch, Uday Rajan, Jonathan Reuter, Gary Solon, Rosemarie Ziedonis, Eric Zitzewitz, seminar participants at the University of Michigan, University of Oregon, University of Alabama, University of Alberta, and University of California Irvine, as well as participants at the 2006 University of Oregon Finance Conference, participants at the 2007 European Finance Association Conference and the discussant Vladimir Ivanov, participants at the 2008 Western Finance Association Conference and the discussant Gustavo Manso, and participants at the 2009 ASSA meetings and the discussant Amit Seru for useful comments and suggestions. I thank the National Bureau of Economic Research (Hall, Jaffe, and Tratjenberg) for making their patent data available for public use.


I examine how strong corporate governance proxied by the threat of hostile takeovers affects innovation and firm value. I find a significant decline in the number of patents and citations per patent for firms incorporated in states that pass antitakeover laws relative to firms incorporated in states that do not. Most of the impact of antitakeover laws on innovation occurs 2 or more years after they are passed, indicating a causal effect. The negative effect of antitakeover laws is mitigated by the presence of alternative governance mechanisms such as large shareholders, pension fund ownership, leverage, and product market competition.