How Does Private Firm Innovation Affect Anti-Takeover Provisions in Corporate Charters? Evidence from Firms Going Public

Using data on anti-takeover provisions (ATPs) and top management characteristics hand-collected from IPO prospectuses, we analyze the effect of the pre-IPO innovativeness and the top management quality of private firms on the number and strength of ATPs in IPO firm charters. We test the “long-term value creation” hypothesis, predicting that more innovative private firms and those with higher top management quality will have more (and stronger) ATPs in their charters; and the “management entrenchment” hypothesis, predicting the opposite. Our results support the former hypothesis. We show causality using an IV analysis using the leniency of patent examiners as an instrument