The Differential Impact on Stockholder Wealth of Various Antitakeover Provisions

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 381 firms that adopted 486 antitakover provisions in the 1984-1988 period indicates a strongly negative effect on stockholder wealth, supporting the management entrenchment view of antitakover 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 then antitakeover provisions provide some support for the argument that stockholders discriminate between individual provisions.

JEL Classification: G34, K22