State Antitakeover Laws and Voluntary Disclosure

Authors

Yijiang Zhao, American UniversityFollow
Arthur Allen, University of Nebraska - LincolnFollow
Iftekhar Hasan, Fordham UniversityFollow

Date of this Version

2013

Document Type

Article

Citation

JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS Vol. 48, No. 2, Apr. 2013, pp. 637–668

Comments

COPYRIGHT 2013

doi:10.1017/S0022109013000124

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.