Takeover protection and stock price crash risk: Evidence from state antitakeover laws

We exploit the passage of state antitakeover laws to examine the relation between takeover protection and stock price crash risk. We find that firms incorporated in states that passed the laws are negatively associated with future stock price crash risk in the post-law periods, suggesting that takeover protection mitigates bad news hoarding activities. Further analysis shows that the mitigating effect is more pronounced when firms have severe information asymmetry or face strong product market competition. Together, our findings shed new light on the impact of takeover threats on managerial incentives to engage in bad news hoarding.