Title:

The Effects of Corporate Antitakeover Provisions on Long-Term Investment : Empirical Evidence, Research Paper 9618

PREVIOUS | NEXT

The Effects of Corporate Antitakeover Provisions on Long-Term Investment : Empirical Evidence, Research Paper 9618

DATE: July 1996

PART OF: AUTHORS:

ABSTRACT: 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 long-term investment prior to the antitakeover provision adoption. We use agency theory to devise more refined empirical test of the effects of antitakeover provision adoptions by managers in firms with different incentive and monitoring structures. Governance variables (e.g., percentage of outsiders on corporate boards, and separate CEO/Chairperson positions) have an insignificant impact on subsequent long-term investment behavior. However, consistent with agency theory predictions, managers in firms with better economic incentives (higher insider ownership) tend to cut subsequent long-term investment less than managers in firms with less incentive alignment. Furthermore, managers in firms with greater external monitoring (due to higher institutional ownership) also tend to cut subsequent long-term investment less than managers in firms with less external monitoring. Thus, the decrease in subsequent long-term investment is significantly less for firms 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 firms cut total long-term investment more. Second, firms that were takeover targets or rumored to be takeover targets cut long-term investment more. These results suggest that inefficient firms cut long-term investment more when an antitakeover provision is adopted.

Download (pdf) View Full Text

Share this page:


Diversity is critical to the Federal Reserve, and we are firmly committed to fostering a diverse and inclusive culture throughout the Federal Reserve System. Collections within FRASER contain historical language, content, and descriptions that reflect the time period within which they were created and the views of their creators. Certain collections contain objectionable content—for example, discriminatory or biased language used to refer to racial, ethnic, and cultural groups. These viewpoints and attitudes are inconsistent with our values, but the original descriptions are retained to ensure that they are not erased from the historical record.
Save & Share
less

Mahoney, James M. , Sundaramurthy, Chamu and Mahoney, Joseph T. "The Effects of Corporate Antitakeover Provisions on Long-Term Investment : Empirical Evidence, Research Paper 9618," Research Papers (Federal Reserve Bank of New York) (July 1996). https://fraser.stlouisfed.org/title/6570/item/615533, accessed on March 22, 2023.

More Information
less

SUBJECTS:

THEMES: CLASSIFICATION:
  • lcc: HG136 .R45 no.9618
IDENTIFIERS:
  • oclc: 35740762
  • fip:fednrp:9618:
Metadata (XML)
Metadata (JSON)