We investigate the causal relation between anti-takeover provisions and shareholders wealth by using a natural experiment to contribute to the long-standing debate on such provisions. In particular, our study focuses on two court rulings that weaken the anti-takeover force of the supermajority provision in a country where a supermajority rule is the most widely used anti-takeover provision. We examine the market reactions around the announcements of these two court rulings and find no evidence that the weakening anti-takeover force of firms is positively related to firm value. However, we find that firms with a supermajority provision significantly underperform at the two court rulings than firms with no anti-takeover provision. We also find that other anti-takeover provisions help mitigate this negative market reaction. These main results are robust to various empirical approaches that aim to address endogeneity issue. Furthermore, our additional evidence suggests that anti-takeover provisions play a more significant role for firms with long-term investment or higher complexity. Overall, our findings are consistent with the value-enhancing perspective, indicating that the market views anti-takeover provisions as inducing higher shareholders wealth.

Keywords: Anti-takeover provision; Corporate governance; Natural experiment; Firm value
JEL Classification: G32, G34