The Effect of Hostile Takeover Threats on Capital Structure: Evidence from Half a Century

Capitalizing on a distinctive measure of takeover susceptibility mainly based on the staggered passage of anti-takeover state legislations, we examine the effect of the takeover market on corporate leverage. Stretching over half a century from 1964 to 2014, our sample includes nearly 180,000 observations and spans the entire spectrum of state laws in the past five decades. Our results show that more hostile takeover threats diminish leverage considerably. Specifically, an increase in takeover vulnerability by one standard deviation reduces leverage by 3.42%. Further analysis validates the results, i.e., propensity score matching, and entropy balancing.