Premium
Institutional and Legal Context in Natural Experiments: The Case of State Antitakeover Laws
Author(s) -
KARPOFF JONATHAN M.,
WITTRY MICHAEL D.
Publication year - 2018
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12600
Subject(s) - context (archaeology) , state (computer science) , law , order (exchange) , identification (biology) , business , law and economics , economics , political science , biology , finance , mathematics , paleontology , botany , algorithm
We argue and demonstrate empirically that a firm's institutional and legal context has first‐order effects in tests that use state antitakeover laws for identification. A priori, the size and direction of a law's effect on a firm's takeover protection depends on (i) other state antitakeover laws, (ii) preexisting firm‐level takeover defenses, and (iii) the legal regime as reflected by important court decisions. In addition, (iv) state antitakeover laws are not exogenous for many easily identifiable firms. We show that the inferences from nine prior studies related to nine different outcome variables change substantially when we include controls for these considerations.