Management Quality And Anti-Takeover Provisions

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Executive Summary

The authors present the first analysis in the literature of the relationship between the quality and reputation of a firm's management and the prevalence of anti-takeover provisions in the corporate charters of IPO firms, and the influence of this relationship on post-IPO performance. They test the implications of two theories regarding the above two relationships: the "Managerial entrenchment" hypothesis, which implies that anti-takeover provisions are meant mainly to enhance the control benefits enjoyed by existing firm management by minimizing the probability of takeovers by rival management teams; and the "Long-term value creation" hypothesis, which argues that such provisions, while they entrench firm management, can also be value enhancing in the hands of higher quality management teams.

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