The effect of antitakeover legislation on banking firms: Empirical evidence from Pennsylvania Act 36

Abstract

The addition of antitakeover provisions to corporate charters restricts the options of shareholders in the disposition of the firm's ownership. At the state level, previous research has produced mixed findings regarding stockholder wealth effects. The purpose of this study is to investigate the wealth effects of Pennsylvania Act 36 on banking firms. This study is different from previous work in this field in that it is postulated that the passage of the Pennsylvania legislation affected not only the wealth of shareholders whose banking firms are headquartered in the state, but also affected the wealth of shareholders of banking corporations headquartered in states with whom Pennsylvania has a reciprocal banking arrangement. The results indicate that Pennsylvania banking firms experience significantly negative abnormal returns as a consequence of the legislation. For banking firms in states with reciprocal arrangements, the results were also significantly negative, reflecting the existence of a contamination effect.