The differential impact on stockholder wealth of various antitakeover provisions

This paper examines the relationship between the passage of six types of corporate antitakeover provisions (supermajority, classified boards, fair-price, reduction in cumulative voting, anti-greenmail and poison pills) and stockholder wealth. Our event study from a sample of 38l firms that adopted 486 antitakeover provisions in the 1984-1988 period indicates a strongly negative effect on stockholder wealth, supporting the management entrenchment view of antitakeover provisions. Moreover, the empirical results of this paper indicate that the market reacts equally negatively to both non-operating provisions that require stockholder approval and to operating provisions that do not require stockholder approval. However, separate analyses of the antitakeover provisions provide some support for the argument that stockholders discriminate between individual provisions.Corporations ; Consolidation and merger of corporations ; Stock - Prices ; Wealth

The effects of corporate antitakeover provisions on long-term investment: empirical evidence

This paper's empirical results indicate that the average effect of antitakeover provisions on subsequent long-term investment is negative. The interpretation of these results depends on whether one thinks that there was too much, too little, or just the right amount of long-term investment prior to the antitakeover provision adoption. We use agency theory to devise more refined empirical test of the effects of antitakeover provision adoptions by managers in firms with different incentive and monitoring structures. Governance variables (e.g., percentage of outsiders on corporate boards, and separate CEO/Chairperson positions) have an insignificant impact on subsequent long-term investment behavior. However, consistent with agency theory predictions, managers in firms with better economic incentives (higher insider ownership) tend to cut subsequent long-term investment less than managers in firms with less incentive alignment. Furthermore, managers in firms with greater external monitoring (due to higher institutional ownership) also tend to cut subsequent long-term investment less than managers in firms with less external monitoring. Thus, the decrease in subsequent long-term investment is significantly less for firms where the managers have greater incentives to act in shareholders' interests. Finally, there are interesting effects of the control variables. First, high book equity/market equity firms cut total long-term investment more. Second, firms that were takeover targets or rumored to be takeover targets cut long-term investment more. These results suggest that inefficient firms cut long-term investment more when an antitakeover provision is adopted.Corporations ; Investments ; Consolidation and merger of corporations