1 / 7

Corporate Antitakeover Defenses

At the heart of any free economy is its capital markets. Investors put their money in these capital markets with the expectation of a return on their investment. What assurance do these investors have that they will receive a fair return on their investment?

alaura
Télécharger la présentation

Corporate Antitakeover Defenses

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. At the heart of any free economy is its capital markets. Investors put their money in these capital markets with the expectation of a return on their investment. What assurance do these investors have that they will receive a fair return on their investment? Corporate governance is the set of processes and procedures that ensures investors a fair return on their investment. In practical terms, corporate governance includes • the articles of incorporation of the company, • the mechanics of the election of the board of directors, • the responsibility of the board to act as fiduciaries of the shareholders, • the responsibility of the board to hire, compensate, and fire senior management, and the public auditors of the company.

  2. Corporate Antitakeover Defenses • Description • Brickley/Lease/Smith (1988), Table A.1. • Example: Poison Pills • Firms issue rights to shareholders. These rights allow shareholders to purchase shares in surviving firm (bidder) at a substantial discount (50%) from the market price. However, (target) firm’s directors can postpone date when these right become exercisable.

  3. Are corporate antitakeover defenses in the interest of shareholders? • No. • Discourages takeovers (lowers probability of a takeover). • Yes. • Encourages higher premia. Target managers’ bargaining position improves. • Of course, since shareholders have to vote to approve such defenses.

  4. Stock Market’s reaction to announcements of corporate antitakeover defenses. • Earlier studies: Zero market reaction. • Tale (Tail !) of the dogs that did not bark! • Did the stock market anticipate announcements of corporate antitakeover defenses? • Bhagat-Jefferis (1991): Yes. Table 7. • After adjustment for anticipation: -1%

  5. Brickley/Lease/Smith (1988) • Over 95% of management-sponsored antitakeover provision proposals pass. • Who votes for such proposals? (Table 2) • Managers and directors. • Pressure-sensitive institutions (insurance companies, bank trusts) • Who votes against such proposals? • Unaffiliated blockholders. • Pressure-resistant institutions (public pension funds, mutual funds, endowments). • Question: Costs on shareholders of understanding firm-value consequences of these and other proposals on a proxy statement.

  6. Over 95% of management-sponsored proposals pass? Why? • Bhagat/Jefferis (1991): Managers only propose amendments that are (very) likely to pass. • Table 7: As votes controlled by ESOPs (affiliated investment plans) increases, managers are more likely to propose antitakeover amendments. • Table 7: As votes controlled by CEO/officers/directors increases, managers are less likely to propose antitakeover amendments.

  7. Table 7: As votes controlled by CEO/officers/directors increases, managers are less likely to propose antitakeover amendments. Why? • Do not want to discourage takeovers (and associated premia). • As they own more shares, less concerned of a hostile takeover and job-loss.

More Related