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State Antitakeover Laws and Voluntary Disclosure

Published online by Cambridge University Press:  18 March 2013

Yijiang Zhao ,
Arthur Allen  and
Iftekhar Hasan
Yijiang Zhao
Affiliation:
[email protected], Kogod School of Business, American University, 4400 Massachusetts Ave NW, Washington, DC 20016
Arthur Allen
Affiliation:
[email protected], School of Accountancy, University of Nebraska-Lincoln, 307 College of Business Administration, Lincoln, NE 68588
Iftekhar Hasan
Affiliation:
[email protected], Fordham University, 1790 Broadway FL 11, New York, NY 10019 and Bank of Finland.
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Abstract

We test the relationship between takeover protection and voluntary disclosure in a setting of antitakeover laws in a firm’s state of incorporation. After correcting for the endogeneity of firms’ incorporation choices, we find that firms incorporated in states with more antitakeover laws have higher levels of voluntary disclosure and stock market liquidity. Further tests do not support shareholder demands being the driving force for this association. Our findings are consistent with takeover protection and poor disclosure serving as substitute mechanisms for deterring takeovers. Therefore, as antitakeover statutes mitigate takeover threats, they enhance managers’ incentives to disclose more in order to realize capital market benefits.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 2 , April 2013 , pp. 637 - 668
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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