Antitakeover devices and firm performance: an empirical study using accounting measures

Abstract

The separation of ownership and control in the modern corporation creates the potential for management to pursue its own self-interests at the expense of stockholder welfare. One mechanism protecting stockholders from self-interested management is the market for corporate control, or the takeover market. The literature suggests that inefficient managers, viewing the threat of takeover and resulting job displacement, have supported the enactment of antitakeover devices to protect themselves from the takeover market.

The objective of this study is to provide information concerning the relationship of one type of antitakeover device, the non-fair price antitakeover amendment, to stockholder welfare. The research addresses the question: Are non-fair price antitakeover amendments being enacted to protect inefficient management at the expense of stockholder interest?

This study uses accounting measures and market measures to compare the performance of firms with non-fair-price antitakeover devices with matching firm that do not have such amendments. Firm performance is used as a surrogate for management efficiency.

Results of the study indicate that firms adopting these amendments exhibit lower performance than firms without such amendments. Amendments, therefore, appear to benefit inefficient managers and do not benefit stockholders.