Incentive

Capital (architecture)

Ex-ante

Macroeconomics

Labour economics

Doctrine

Archaeology

Economics

Market economy

Computer science

Business

Database

Commit

Political science

Monetary economics

Value (mathematics)

Human capital

Finance

Order (exchange)

Machine learning

History

Journal of Accounting and Economics

How do firms protect their human capital? We test whether firms facing an increased threat of being acquired strengthen their antitakeover provisions (ATPs) in order to bond with their employees. We use the adoption of the Inevitable Disclosure Doctrine (IDD) by US state courts, which exogenously decreases knowledge-worker mobility, thus elevating takeover risk and reducing employee incentives to innovate. Firms respond to the IDD adoption by strengthening ATPs that defend against hostile takeovers, especially when they have greater ex-ante employee mobility and human capital and place greater importance on employee relations. We find no evidence that managers strengthen ATPs for entrenchment or takeover bargaining purposes in this setting. Our findings show that ATPs can be used to credibly commit to employees in order to protect long-term value creation.

Labor mobility and antitakeover provisions