On the Alignment of Manager's and Shareholders' Interests : Some Evidence on the Wealth Effects of Antitakeover Amendments

Using an estimation technique from the econometrics literature on limited dependent variables, we find that the unconditional expected abnormal stock-price performance associated with the proposal of an antitakeover amendment is negative and significant. We also provide the first direct evidence that the actual abnormal stock-price performance experienced by firms which proposed antitakeover amendments is significantly better than that which would be expected for a randomly selected firm were its management to propose an antitakeover amendment. Our evidence indicates that the manager's decision to propose an antitakeover amendment depends upon the firm's ownership structure and its pre- announcement abnormal stock-price performance. Finally, we find that the abnormal stock-price performance observed around the announcement of the antitakeover amendment proposal is significantly and positively correlated with the manager's decision to propose the amendment. Taken together, our results are inconsistent with the need for regulatory intervention with respect to antitakeover amendments suggested by previous researchers