Another look at the managerial entrenchment hypothesis of acquisitions: A replication of Humphery-Jenner (2014)

Abstract

Anti-takeover provisions have long been associated with managerial entrenchment, self-interested strategic behaviors, and lower performance. Humphery-Jenner (2014) offers an opposing view, arguing that anti-takeover provisions can lead to beneficial managerial entrenchment for acquiring firms in hard-to-value industries. These firms are particularly vulnerable to opportunistic takeovers and once shielded from those threats, managers could undertake acquisition strategies that offer positive performance outcomes over a longer-term horizon. We replicate Humphery-Jenner's study to assess the boundaries and generalizability of his hypothesis. After we first reproduce his findings for his sample of 3935 acquisitions occurring between 1990 and 2005, we find no relationship between anti-takeover provisions, acquisitions by firms in hard-to-value industries, and firm performance in both an updated sample of acquisitions (3372 acquisitions made during 2006–2015) and a combined sample encompassing 7307 acquisitions spanning the complete 26-year period (1990–2015). We also find no relationships between anti-takeover provisions and acquisition performance in the replication. Overall, the beneficial managerial entrenchment hypothesis of acquisitions appears to have limits to its generalizability.