The effects of corporate antitakeover provisions on long-term investment: empirical evidence
✍ Scribed by James M. Mahoney; Chamu Sundaramurthy; Joseph T. Mahoney
- Publisher
- John Wiley and Sons
- Year
- 1997
- Tongue
- English
- Weight
- 174 KB
- Volume
- 18
- Category
- Article
- ISSN
- 0143-6570
No coin nor oath required. For personal study only.
✦ Synopsis
This paper's empirical results indicate that the average effect of antitakeover provisions on subsequent long-term investment is negative. The interpretation of these results depends on whether one thinks that there was too much, too little, or just the right amount of longterm investment prior to the antitakeover provision adoption. We use agency theory to devise more re®ned empirical tests of the effects of antitakeover provision adoption by managers in ®rms with different incentive and monitoring structures. Governance variables (e.g. percentage of outsiders on corporate boards, and separate CEO/chairperson positions) have an insigni®cant impact on subsequent long-term investment behavior. However, consistent with agency theory predictions, managers in ®rms with better economic incentives (higher insider ownership) tend to cut subsequent long-term investment less than managers in ®rms with less incentive alignment. Furthermore, managers in ®rms with greater external monitoring (due to higher institutional ownership) also tend to cut subsequent long-term investment less than managers in ®rms with less external monitoring. Thus, the decrease in subsequent long-term investment is signi®cantly less for ®rms where the managers have greater incentives to act in shareholders' interests. Finally, there are interesting effects of the control variables. First, high book equity/ market equity ®rms cut total long-term investment more. Second, ®rms that were takeover targets or rumored to be takeover targets cut long-term investment more. These results suggest that inef®cient ®rms cut long-term investment more when an antitakeover provision is adopted.