Wednesday, December 30, 2015 | 2:00pm-3:30pm | Room 335, HSBC Business School Building

Abstract

Using a large panel sample covering 2002–2009, we find that firms with larger cash holdings are less likely to opt out of state antitakeover statutes (ATS). This result suggests that firms with higher liquidity needs have incentive to protect their internal cash from unsolicited bids from the corporate control market. The quasi-natural experiment of the 2007 financial crisis and a two-stage least squares analysis provide robustness to our finding: the benefit of reserving cash is greater than the cost from less monitoring from the corporate control market when the internal cash is more valuable during the financial crisis and under limited external financing. We also find that shareholders with a better-functioning board are more sensitive to the value of internal cash when determining whether to opt out of ATS.