Working Papers,
Copenhagen Business School, Department of Finance

Abstract: This paper tests the hypothesis that the threat of a contested

takeover improves corporate performance. This is done by a cross-sectional

analysis of listed Danish firms with and without effective takeover defenses.

Takeover defenses adopted by Danish firms mainly consist of dual class

voting rights often in combination with foundation ownership. Using

simultaneous equation estimation to deal with the problem of causation, the

results show that unprotected firms do not outperform protected firms. This

suggests that management in unprotected firms are disciplined by other

corporate governance mechanisms than the market for corporate control,

including the legal protection of shareholders.

Keywords: Takeovers; Company law; Corporate Control; Corporate Governance; Simultaneous equation estimation.

JEL-codes: C31; G32; G34; K22

40 pages, April 30, 2001

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