Exogenous Increase in Takeover Protection and Firm Knowledge Accumulation Strategy
Abstract
The development and deployment of firm-specific knowledge (vis-à-vis general knowledge) are likely to require the firm's top managers to invest in a higher level of the corresponding specialized managerial skills. Managers may be concerned about engaging in such efforts if the firm is prone to takeover threats, because they are more likely to be replaced, and the value of their specialized skills is at greater risk. Thus, we argue that an exogenous increase in takeover protection may mitigate managers' concerns and lead to a firm's strategic shift toward accumulating more firm-specific knowledge. Moreover, with an increase in takeover protection, firm-specific knowledge may have a greater impact on a firm's financial performance. Our analysis of a large set of panel data supports these arguments. This study contributes to the resource-based view of the firm and corporate governance literatures by showing how they may be integrated to provide a better understanding of a firm's knowledge accumulation strategy and the governance effectiveness of market for corporate control.