Working Paper: NBER ID: w10190
Authors: Lucian Arye Bebchuk; William J. Friedman; Alicia Townsend
Abstract: Firms going public have increasingly been incorporating antitakeover provisions in their IPO charters, while shareholders of existing companies have increasingly been voting in opposition to such charter provisions. This paper identifies possible explanations for this empirical pattern. Specifically, I analyze explanations based on (1) the role of antitakeover arrangements in encouraging founders to break up their initial control blocks, (2) efficient private benefits of control, (3) agency problems among pre-IPO shareholders, (4) agency problems between pre-IPO shareholders and their IPO lawyers, (5) asymmetric information between founders and public investors about the firm's future growth prospects, and (6) bounded attention and imperfect pricing at the IPO stage.
Keywords: antitakeover provisions; IPO; corporate governance
JEL Codes: G30; G34; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Antitakeover provisions (G34) | deconcentration of ownership (G34) |
| deconcentration of ownership (G34) | benefits for shareholders (G35) |
| Agency problems among pre-IPO shareholders (G34) | inefficient adoption of antitakeover provisions (G34) |
| Asymmetric information (D82) | founders adopting antitakeover arrangements (G34) |
| Bounded attention at IPO stage (G24) | investors not fully pricing implications of antitakeover provisions (G34) |
| investors not fully pricing implications of antitakeover provisions (G34) | later rejection of provisions (H42) |