Antitakeover provisions, managerial entrenchment and firm innovation

•We explore the relation between antitakeover provisions and firm performance in innovation.•We measure innovation by the number of patents and number of citations to patents.•Managers who are protected from takeover market perform worse on innovation.•Negative relation between antitakeover provisions and firm innovation holds only for low-tech firms.•Results support agency based explanation of the relation between antitakeover provisions and performance in innovation. We explore the relation between antitakeover provisions (i.e. managerial entrenchment) and firm performance in innovation. Empirical results indicate that an increase in antitakeover provisions is negatively related to number of patents and number of citations to patents. Thus managers who are protected from takeover market perform worse on innovation. However, the negative relation between antitakeover provisions and firm innovation holds only for low-tech firms. For high-tech firms, this relation is not statistically significant. One possible explanation is that high-tech firms have to innovate continuously to survive in the long run. The competitive pressure to innovate or perish dissipates the negative effect of managerial entrenchment on firm innovation. Overall, our results support the agency based explanation of the relation between antitakeover provisions and firm performance in innovation.