L.R.T. van der Goot
- Takeover defences and IPO firm value in the Netherlands.
- European Financial Management
- Volume | Issue number
- 9 | 4
- Pages (from-to)
- Number of pages
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam Business School Research Institute (ABS-RI)
The central question of this study involves the relation between the use of takeover defences and IPO firm value. We report that management frequently uses takeover defences before taking the firm public. The use of takeover defences is primarily motivated by managerial entrenchment. IPO investors anticipate potential conflict of interests with management and reduce the price they pay for the IPO shares if takeover defences are adopted. Although managers internalise this cost of takeover defences to the degree they own pre-IPO stock, they are likely to gain through private control benefits. Non-management pre-IPO owners lose. Their shares are worth less, but different from managers, they do not get offsetting private control benefits. We infer that managers use takeover defences to protect private control benefits at non-management pre-IPO owners' expense.
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