Antitakeover Charter Amendments Research Articles

Are Antitakeover Charter Amendments Good News Or Bad News For Managers And Shareholders?

<span>In recent years many firms adopted antitakeover amendments to their corporate charters. The amendments have come under criticism from those who believe that they are harmful, and little sentiment in favor of the amendments seems to exist. This article discusses issues related to antitakeover amendments, and presents an overview of available empirical evidence about the amendments. The evidence demonstrates that the amendments are not always harmful and indeed suggests that the amendments, at least in some cases, are beneficial.</span>

Implications of CEO Structural And Ownership Powers, Board Ownership And Composition On The Markets Reaction To Antitakeover Charter Amendments

<span>This study analyzes how the CEOs structural and ownership powers, along with the board of directors ownership and composition influence the markets reaction to antitakeover charter amendments. We find conditional support for both the agency and stewardship theories, each being relevant depending on governance mechanisms. The market evaluates the potential effect of the amendments on the balance of power between the CEO and the board of directors, and whether there are any countervailing forces to assure shareholders rights are being protected.</span>

Agency costs and the dividend decision

We examine the relation between the firm’s agency costs and the decision to distribute cash to shareholders by declaring a nonrecurring special dividend or by significantly increasing the firm’s regular dividend. The independence of the board of directors, the voting rights of outside blockholders and the presence of antitakeover charter amendments all proxy for the level of agency costs within the firm. We find firms that significantly increase their regular dividend are more likely to have a greater proportion of independent directors on their boards and greater outside blockholdings, and are less likely to adopt antitakeover charter amendments than firms that declare a special dividend. The evidence supports the notion that firms with greater agency costs are more likely to pay a special dividend, whereas firms with lower agency costs are more likely to increase their regular dividend.

Corporate Governance and Anti-Takeover Devices: Evidence from Australia

This paper seeks to establish what form of management structure, ownership structure and financial characteristics are exhibited by firms that propose and subsequently adopt anti-takeover charter amendments (ATCAs) in Australia. An ATCA is a restriction of partial takeover activity implemented though shareholder approval to changes in a firm's constitution. Approval for such changes is obtained through majority agreement from a plebiscite of shareholders. The study adopts a control sample design to analyse if characteristics differ statistically from adopting ATCA firms and those which do not adopt ATCAs during the investigation period. Following this, a logit analysis establishes the importance of variables considered to have a role in distinguishing between ATCA adoptees and firms without ATCAs. The variables tested include proportion of independent directors; directors' shareholdings; proportion of shares held by institutional shareholders; and proportion of shares held by the largest 20 shareholders. Various measures of performance are also tested with some evidence being found that poorly performing firms are most likely to introduce ATCAs.

The impact of anti-takeover charter amendments on expectations of future earnings and takeover activity

In this study, additional evidence of the impact of anti-takeover amendments on firm earnings and subsequent takeover activity is presented. It is found that analysts' projections of financial performance measures do not appear to be altered by the adoption of anti-takeover amendments. Additionally, it is found that the anti-takeover charter amendments do not impact either takeover activity or takeover premiums following their adoption. Thus, anti-takeover amendments appear to have few, if any, consequences to shareholders. Copyright © 1999 John Wiley & Sons, Ltd.

The Massachusetts Classified Board Law

This study investigates the impact of the Massachusetts Classified Board Law on shareholder wealth. This state law is the first law to explicitly require a change in the structure of the board of directors of every firm within the state. In addition, restrictive rules on replacing members of the board of directors enable directors to insulate themselves from takeover attempts. We find this law decreased share values by 16 percentage points for firms without anti-takeover amendments. However, firms with a golden parachute outperformed firms without golden parachutes by 23 percent. This supports the hypothesis that financial markets consider many firm characteristics when evaluating the impact of state anti-takeover legislation. The management entrenchment hypothesis is supported for firms without prior anti-takeover charter amendments. The shareholder interest hypothesis is supported for firms with golden parachutes.

CEO Contracting and Antitakeover Amendments

This paper examines incentives for adopting antitakeover charter amendments (ATAs) that are associated with compensation contracts. The evidence is consistent with the hypothesis that antitakeover measures such as ATAs help managers protect above-market levels of compensation. Chief executive officers (CEOs) of firms that adopt ATAs receive higher salaries and more valuable option grants than CEOs at similar firms that do not adopt them. Furthermore, the magnitude of this difference increases following ATA adoption. The evidence is inconsistent with the hypothesis that ATAs facilitate the writing of efficient compensation contracts.

CEO Contracting and Antitakeover Amendments

ABSTRACTThis article examines incentives for adopting antitakeover charter amendments (ATAs) that are associated with compensation contracts. The evidence is consistent with the hypothesis that antitakeover measures such as ATAs help managers protect above‐market levels of compensation. Chief executive officers (CEOs) of firms that adopt ATAs receive higher salaries and more valuable option grants than CEOs at similar firms that do not adopt them. Furthermore, the magnitude of this difference increases following ATA adoption. The evidence is inconsistent with the hypothesis that ATAs facilitate the writing of efficient compensation contracts.

Ownership structure and returns to defensive stock repurchase

This study investigates the wealth effect of defensive common stock repurchase (CSR) on outside shareholders. It is found that the impact varies with the type of corporate control activity that precipitates the repurchase. Outside shareholders suffer wealth losses when a CSR announcement follows an unsolicited bid for the firm. The impact of the CSR announcement following a partial acquisition is negative but not as strong. However, outside shareholders benefit from CSR following antitakeover charter amendments. This study also documents a nonlinear relationship between managerial equity ownership and changes in the value of the firm at the announcement of a defensive CSR.

Firm Size, Antitakeover Charter Amendments, and the Effect of State Antitakeover Legislation

This study investigates the impact of state antitakeover legislation on the market value of affected firms and considers the role that both acquisition attractiveness, as measured by firm size, and antitakeover amendments play in the market reaction. When separating the sample by size and by the presence of amendments, small firms display a negative reaction to the legislation, large firms show no reaction, firms without amendments react negatively, and there is a positive reaction for firms with amendments. When separating the sample on the basis of both dimensions, small firms without amendments, the most attractive acquisition targets, experience a significant, negative market response. Large firms with amendments, the least attractive group, are positively affected. The two intermediate groups are not significantly affected.

CORPORATE TAKEOVER BARRIERS: VALUATION AND FIRM PERFORMANCE

This study provides additional evidence on the share price effect of takeover barriers such as antitakeover charter amendments, dual classes of common stock, and poison pill plans. The share price reaction to the construction of takeover barriers is found to be negative but insignificant. However, when disaggregated by type, significant negative share price reactions are found on construction of poison pill plans. New evidence on the possible relationship between firm performance and takeover barrier construction is also presented. The results of this study suggest that management of ‘efficiently‐run’ firms may construct takeover barriers to deter value‐diminishing takeovers.

State intervention in the market for corporate control: The case of Pennsylvania Senate Bill 1310

This study investigates the impact of Pennsylvania Senate Bill 1310 on the share prices of Pennsylvania corporations. Considered the most severe of the second-generation antitakeover laws, the statute limits the ability of shareholders to challenge management through the proxy process and eliminates the traditional fiduciary obligation of directors to promote shareholders' interests. We find that PA SB1310 significantly decreased share values, and estimate the loss to shareholders of Pennsylvania firms at $4 billion. However, firms with antitakeover charter amendments already in place were less affected, and firms that exempted themselves from PA SB1310 recovered a portion of shareholders' wealth.

Shark repellents and the role of institutional investors in corporate governance

AbstractThis paper examines the role of institutional shareholders in monitoring managers when they propose antitakeover charter amendments (shark repellents). These proposals provide a rare opportunity to examine this issue since they can be adopted only by shareholder approval. We document a positive relationship between the ownership of institutional shareholders and the stock market reaction to the announcement of antitakeover amendments. This finding is consistent with the Demsetz (1983) and Shleifer and Vishny (1986) proposition that large blockholders reduce the free‐rider problem associated with monitoring managers.

Antitakeover Charter Amendments: Impact on Determinants of Future Competitive Position

This research examined the subsequent longterm investment consequences of the adoption of antitakeover charter amendments by U.S. industrial manufacturing firms. Longterm investment a major determinant offuture economic growth and business competitiveness was assessed by analyzing research and development and capital investment intensity levels. In a matchedpair design, analyses were conducted on two separate samples of companies to assess the relationship between antitakeover amendment adoption and future oriented re source allocation decisions. Results fail to indicate the existence of a general main effect of antitakeover amendments on longterm investment for either sample offirms.

Voting power in the proxy process: The case of antitakeover charter amendments

The likelihood that a firm will enact a management-sponsored antitakeover charter amendment depends on ownership structure. This implies that the adoption of antitakeover amendments may be anticipated. Then announcement returns provide a biased estimate of wealth effects. An estimator that corrects for the bias induced by anticipation indicates that the enactment of an antitakeover amendment is associated with a statistically significant decrease in shareholder wealth. The voting power of employee stock ownership plans and the chief executive officer plays a prominent role in determining whether a firm will adopt this type of takeover defense.

Shark Repellents and Managerial Myopia: An Empirical Test

Since the proxy fights of the 1950s, commentators have debated the welfare implications of corporate takeovers. Although observers such as Manne (1965), Jensen and Meckling (1976), Fama (1980), and Jensen and Ruback (1983) argue that the market for corporate control promotes efficiency and enhances wealth, some critics, such as managers of firms subject to hostile takeover attempts, contend that takeovers destroy firm value. The critics frequently assert that takeover pressure forces managers to sacrifice profitable, but slowyielding, long-term investments in favor of less productive short-term investments that offer immediate returns. While the evidence supporting takeover-induced shortsightedness is largely anecdotal, a recent paper by Stein (1988) develops a formal

Large Shareholders and the Monitoring of Managers: The Case of Antitakeover Charter Amendments

This paper examines the role of large shareholders in monitoring managers when they propose antitakeover charter amendments. We attempt to distinguish between two competing hypotheses: the active monitoring hypothesis and the passive voting hypothesis. We find a statistically significant positive relation between institutional ownership and the stockholder wealth effects of various types of amendments, after controlling for ownership concentration among institutions, managerial ownership, and firm size. Our empirical evidence lends support to the active monitoring hypothesis proposed by Demsetz (1983) and Shleifer and Vishny (1986) that the existence of large shareholders leads to better monitoring of managers.

Antitakeover charter amendments and stockholder wealth

Many large corporations have recently adopted antitakeover charter amendments which make the transfer of corporate control more difficult. This paper develops and tests competing theoretical explanations for the passage of these amendments. In one view, antitakeover provisions are adopted because incumbent management seeks job protection at stockholders' expense. The alternative hypothesis is that antitakeover provisions benefit stockholders, perhaps by extracting greater payment in exchange for corporate control. Although inconclusive, the evidence provides weak preliminary support for the hypothesis that antitakeover amendments are best explained as a device for managerial entrenchment.