Dr. Sonia Wasan, assistant Professor, Accounting Department, presented this paper as part of the Dean's Seminar for November 2007.
Antitakeover Protection and R&D Expenditure * |
Abstract
We study the relation between antitakeover protection and R&D expenditure using an index developed by Gompers, Ishii, and Metrick (2003) that incorporates 24 antitakeover provisions. Prior studies that examine the role antitakeover protection on R&D report inconsistent results. We contribute to this area of enquiry by employing a comprehensive measure of antitakeover protection, the GINDEX (Governance Index) developed by Gompers Ishii, and Metrick (2003) and study its association with R&D expenditure. Using a sample of 6,477 firm–year observations over the period 1990–2002, we find R&D to be decreasing in the extent and magnitude of antitakeover measures adopted by firms. Our finding suggests that entrenched managers tend to reduce R&D expenditure when they are shielded from threats of external takeover. This result is robust to employing different constructs of both R&D expenditure and antitakeover measures, as well as to alternate model specifications and estimation methods. |
