Managerial Entrenchment and Anti-takeover Provisions in Japan

Abstract

We analyze the characteristics of Japanese firms that introduced antitakeover provisions after the official guidelines for antitakeover provisions were released in 2005. Our main results are the following. First, firms' operating performance or stock market valuations were not related to the adoption of takeover defense measures. Second, firms' age and their ownership structure were correlated with the adoption of antitakeover provisions. Specifically, companies that were older, had lower proportions of shares held by their directors, or higher cross-shareholding ratios were more likely to adopt takeover defense measures, which suggests that the adoption of such measures is motivated by self-protection on the part of corporate managers and influenced by the conflicts of interest between managers and shareholders. In addition, as controlling shareholders had lower shares of stocks and institutional investors had higher shares of stocks, firms were more inclined to adopt takeover defense measures, suggesting that companies are likely to adopt such measures if their shares are liquid and easy to acquire.