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The differential impact on stockholder wealth of various antitakeover provisions

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  • James M. Mahoney
  • Chamu Sundaramurthy
  • Joseph T. Mahoney
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    Abstract

    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.

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9512.

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    Date of creation: 1995
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    Handle: RePEc:fip:fednrp:9512

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    Related research

    Keywords: Corporations ; Consolidation and merger of corporations ; Stock - Prices ; Wealth;

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    1. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
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    3. Berkovitch, Elazar & Khanna, Naveen, 1990. " How Target Shareholders Benefit from Value-Reducing Defensive Strategies in Takeovers," Journal of Finance, American Finance Association, vol. 45(1), pages 137-56, March.
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    5. Pugh, William N & Page, Daniel E & Jahera, John S, Jr, 1992. "Antitakeover Charter Amendments: Effects on Corporate Decisions," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 15(1), pages 57-67, Spring.
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    7. Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
    8. De, Sankar & Knez, Peter J, 1993. "Managerial Reaction to Takeover Bids: A Theory of Strategic Resistance," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(4), pages 567-92, Winter.
    9. DeAngelo, Harry & Rice, Edward M., 1983. "Antitakeover charter amendments and stockholder wealth," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 329-359, April.
    10. Eckbo, B. Espen, 1990. "Valuation Effects of Greenmail Prohibitions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(04), pages 491-505, December.
    11. Turk, Thomas A. & Zardkoohi, Asghar, 1994. "Economic effects of first generation state antitakeover statutes on target firm shareholders," Journal of Economics and Business, Elsevier, vol. 46(4), pages 325-334, October.
    12. Austen-Smith, David & O'Brien, Patricia C, 1992. "Takeover Defences and Shareholder Voting," Economica, London School of Economics and Political Science, vol. 59(234), pages 199-219, May.
    13. Bhagat, Sanjai & Brickley, James A, 1984. "Cumulative Voting: The Value of Minority Shareholder Voting Rights," Journal of Law and Economics, University of Chicago Press, vol. 27(2), pages 339-65, October.
    14. Agrawal, Anup & Mandelker, Gershon N., 1990. "Large Shareholders and the Monitoring of Managers: The Case of Antitakeover Charter Amendments," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(02), pages 143-161, June.
    15. Demsetz, Harold, 1983. "The Structure of Ownership and the Theory of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 375-90, June.
    16. Pound, John, 1992. "On the Motives for Choosing a Corporate Governance Structure: A Study of Corporate Reaction to the Pennsylvania Takeover Law," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(3), pages 656-72, October.
    17. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    18. Moerland, Pieter W., 1995. "Alternative disciplinary mechanisms in different corporate systems," Journal of Economic Behavior & Organization, Elsevier, vol. 26(1), pages 17-34, January.
    19. Meulbroek, Lisa K, et al, 1990. "Shark Repellents and Managerial Myopia: An Empirical Test," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1108-17, October.
    20. Brickley, James A. & Lease, Ronald C. & Smith, Clifford Jr., 1994. "Corporate voting: Evidence from charter amendment proposals," Journal of Corporate Finance, Elsevier, vol. 1(1), pages 5-31, March.
    21. Ambrose, Brent W. & Megginson, William L., 1992. "The Role of Asset Structure, Ownership Structure, and Takeover Defenses in Determining Acquisition Likelihood," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(04), pages 575-589, December.
    22. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
    23. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
    24. Bhagat, Sanjai & Jefferis, Richard H., 1991. "Voting power in the proxy process : The case of antitakeover charter amendments," Journal of Financial Economics, Elsevier, vol. 30(1), pages 193-225, November.
    25. Klein, April & Rosenfeld, James, 1988. "Targeted share repurchases and top management changes," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 493-506, January.
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