Publication
Takeover Protections and Asset Prices
Abstract
We study the effects of takeover feasibility on asset prices and returns in a unified framework. We show theoretically that takeover protections increase equity risk, stock returns, and bond yields by removing a valuable put option to sell the firm, notably for firms approaching distress. We investigate these claims empirically and find that distressed firms experience a significant decrease in value and increase in returns and market betas after the passage of antitakeover laws, in line with our predictions. At issue bond yields are also higher when an antitakeover law is in effect. Consistent with the model, the effects of antitakeover laws on stock returns, respectively, bond yields, are greater when shareholders, respectively, bondholders, have greater bargaining power.
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Ontological neighbourhood
Related concepts (32)
Bond (finance)
In finance, a bond is a type of security under which the issuer (debtor) owes the holder (creditor) a debt, and is obliged – depending on the terms – to provide cash flow to the creditor (e.g. repay the principal (i.e. amount borrowed) of the bond at the maturity date as well as interest (called the coupon) over a specified amount of time). The timing and the amount of cash flow provided varies, depending on the economic value that is emphasized upon, thus giving rise to different types of bonds.
Bond fund
A bond fund or debt fund is a fund that invests in bonds, or other debt securities. Bond funds can be contrasted with stock funds and money funds. Bond funds typically pay periodic dividends that include interest payments on the fund's underlying securities plus periodic realized capital appreciation. Bond funds typically pay higher dividends than CDs and money market accounts. Most bond funds pay out dividends more frequently than individual bonds.
Yield to maturity
The yield to maturity (YTM), book yield or redemption yield of a bond or other fixed-interest security, such as gilts, is an estimate of the total rate of return anticipated to be earned by an investor who buys a bond at a given market price, holds it to maturity, and receives all interest payments and the capital redemption on schedule. It is the (theoretical) internal rate of return (IRR, overall interest rate): the discount rate at which the present value of all future cash flows from the bond (coupons and principal) is equal to the current price of the bond.
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