Financial institution default frequencies and takeover defenses

Abstract

Purpose

The purpose of this paper is to examine the relationship between estimated default frequencies (EDFs) and a government index that proxies for takeover defense provisions for publicly‐traded financial institutions from 2002 to 2004.

Design/methodology/approach

Using a sample of publicly‐traded financial institutions, the effect of anti‐takeover provisions on EDFs was analyzed.

Findings

It was found that financial institutions with multiple takeover defenses tend to have lower EDFs compared with those with fewer takeover defenses. This result is robust to a variety of specifications and is supportive of the wealth distribution hypothesis. Further, it appears that the result is primarily driven by non‐depository institutions. This may imply that regulation of depository institutions mitigates takeover defense effects on managerial behavior.

Originality/value

This paper adds to the corporate finance literature, which reports mixed findings on the relationships between takeover defenses and firm value.

Citation

Webb, E. (2007), "Financial institution default frequencies and takeover defenses", Studies in Economics and Finance, Vol. 24 No. 4, pp. 286-296. https://doi.org/10.1108/10867370710831837