The board of directors might decide it is in the best interest of shareholders to sell the corporation to new owners. In theory, a change in control only makes sense when the value of the firm to new owners, minus transaction costs, is greater than the value of the firm to current owners.
This Quick Guide examines the market for corporate control.
It answers the questions:
• Why do companies merge?
• Do mergers improve performance?
• Who gets the value in a merger?
• How do companies protect themselves from hostile bids?
• Do these protections help shareholders?
For an expanded discussion, see Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (Second Edition) by David Larcker and Brian Tayan (2015): http://www.gsb.stanford.edu/faculty-research/books/corporate-governance-matters-closer-look-organizational-choices
Buy This Book: http://www.ftpress.com/store/corporate-governance-matters-a-closer-look-at-organizational-9780134031569
For permissions to use this material, please contact: E: corpgovernance@gsb.stanford.edu
Copyright 2015 by David F. Larcker and Brian Tayan. All rights reserved.
This ppt deals with introduction to mergers and acquisition with relevant examples from industry. It also tells pros and cons of mergers and acquisitions.
- Understand the motives for corporate restructuring, different types of restructuring including: mergers & acquisitions, leveraged buyouts, and divestitures.
- Valuing the corporate restructuring process.
- Case Study: Exxon-Mobil merger
It is comprehensive Presentation covering all the aspects of Takeover defenses like
Active Takeover Defense and Preventive Take over Defense
Hope you enjoy reading it as much as i enjoyed working it
This ppt deals with introduction to mergers and acquisition with relevant examples from industry. It also tells pros and cons of mergers and acquisitions.
- Understand the motives for corporate restructuring, different types of restructuring including: mergers & acquisitions, leveraged buyouts, and divestitures.
- Valuing the corporate restructuring process.
- Case Study: Exxon-Mobil merger
It is comprehensive Presentation covering all the aspects of Takeover defenses like
Active Takeover Defense and Preventive Take over Defense
Hope you enjoy reading it as much as i enjoyed working it
Merger and Acquisition ppt - SlideShareJanvhi Sahni
International Business Management (IBM) - BBA & MBA NOTES / POWER POINT PRESENTATION.... This ppt will tell you about the merging and takeover companies in India along with various examples. Presented By: Janvhi
The Concept
A stable strategy arises out of a basic perception by the management that the firm should concentrate on using its present resources for developing its competitive strength in particular market areas.
In simple words, stability strategy refers to the company’s policy of continuing the same business and with the same objectives
A firm pursues stability strategy when
1. It continues to serve the public in the same product or service, market, and function sectors as defined in its business definition.
2. Its main strategic decisions focus on incremental improvement of functional performance.
2. Corporate Restructuring is the process of redesigning one or more aspects of a company.
3. The process of reorganizing a company may be implemented due to a number of different factors, such as positioning the company to be more competitive, surviving a currently adverse economic climate, or acting on the self confidence of the corporation to move in an entirely new direction.
Dividend policy
What is Dividend?
What is dividend policy?
Theories of Dividend Policy
Relevant Theory
Walter’s Model
Gordon’s Model
Irrelevant Theory
M-M’s Approach
Traditional Approach
Referred to:
Prasanna Chandra
Merger and Acquisition ppt - SlideShareJanvhi Sahni
International Business Management (IBM) - BBA & MBA NOTES / POWER POINT PRESENTATION.... This ppt will tell you about the merging and takeover companies in India along with various examples. Presented By: Janvhi
The Concept
A stable strategy arises out of a basic perception by the management that the firm should concentrate on using its present resources for developing its competitive strength in particular market areas.
In simple words, stability strategy refers to the company’s policy of continuing the same business and with the same objectives
A firm pursues stability strategy when
1. It continues to serve the public in the same product or service, market, and function sectors as defined in its business definition.
2. Its main strategic decisions focus on incremental improvement of functional performance.
2. Corporate Restructuring is the process of redesigning one or more aspects of a company.
3. The process of reorganizing a company may be implemented due to a number of different factors, such as positioning the company to be more competitive, surviving a currently adverse economic climate, or acting on the self confidence of the corporation to move in an entirely new direction.
Dividend policy
What is Dividend?
What is dividend policy?
Theories of Dividend Policy
Relevant Theory
Walter’s Model
Gordon’s Model
Irrelevant Theory
M-M’s Approach
Traditional Approach
Referred to:
Prasanna Chandra
Describes shareholder activism factors, targets and strategies from an activist investor and shareholder value perspective.
Note: Confidential and proprietary information omitted from public version.
Valuation of Private vs. Public Companies. Private company valuations are discounted based on several risk factors associated with private sector investing, which results in a marked difference between the valuation of a privately held company, subsidiary or a division and a publicly traded corporation.
This content is designed to develop understanding of different types of mergers and acquisitions and the process involved in executing their deals and also develop an ability to understand factors influencing the valuation of a business and different methods used in Business Valuation.
Authored by: David F. Larcker, Bradford Lynch, Brian Tayan, and Daniel J. Taylor, June 29, 2020
Investors rely on corporate disclosure to make informed decisions about the value of companies they invest in. The COVID-19 pandemic provides a unique opportunity to examine disclosure practices of companies relative to peers in real time about a somewhat unprecedented shock that impacted practically every publicly listed company in the U.S. We examine how companies respond to such a situation, the choices they make, and how disclosure varies across industries and companies.
We ask:
• What motivates some companies to be forthcoming about what they are experiencing, while others remain silent?
• Do differences in disclosure reflect different degrees of certitude about how the virus would impact businesses, or differences in management perception of its obligations to shareholders?
• What insights will companies learn to prepare for future outlier events?
Authored by: avid F. Larcker, Brian Tayan, CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), April 2020
This Research Spotlight provides a summary of the academic literature on board composition, quality, and turnover. It reviews the evidence of:
The appointment of outside CEOs as directors
The importance of industry expertise to performance
The relation between director skills and performance
The stock market reaction to director resignations
Whether directors are penalized for poor oversight
This Research Spotlight expands upon issues introduced in the Quick Guide Board of Directors: Selection, Compensation, and Removal.
David F. Larcker and Brian Tayan, April 21, 2020, Stanford Closer Look Series
Little is known about the process by which pre-IPO companies select independent, outside board members—directors unaffiliated with the company or its investors. Private companies are not required to disclose their selection criteria or process, and are not required to satisfy the regulatory requirements for board members set out by public listing exchanges. In this Closer Look, we look at when, why, and how private companies add their first independent, outside director to the board.
We ask:
• Why do pre-IPO companies rely on very different criteria and processes to recruit outside directors than public companies do?
• What does this teach us about governance quality?
• How important are industry knowledge and managerial experience to board oversight?
• How important are independence and monitoring?
• Does a tradeoff exist between engagement and fit on the one hand and independence on the other?
Authored by David F. Larcker and Brian Tayan, April 1, 2020, Stanford Closer Look Series
We examine the size, structure, and demographic makeup of the C-suite (the CEO and the direct reports to the CEO) in each of the Fortune 100 companies as of February 2020. We find that women (and, to a lesser extent, racially diverse executives) are underrepresented in C-suite positions that directly feed into future CEO and board roles. What accounts for this distribution?
By John D. Kepler, David F. Larcker, Brian Tayan, and Daniel J. Taylor, January 28, 2020
Corporate executives receive a considerable portion of their compensation in the form of equity and, from time to time, sell a portion of their holdings in the open market. Executives nearly always have access to nonpublic information about the company, and routinely have an information advantage over public shareholders. Federal securities laws prohibit executives from trading on material nonpublic information about their company, and companies develop an Insider Trading Policy (ITP) to ensure executives comply with applicable rules. In this Closer Look we examine the potential shortcomings of existing governance practices as illustrated by four examples that suggest significant room for improvement.
We ask:
• Should an ITP go beyond legal requirements to minimize the risk of negative public perception from trades that might otherwise appear suspicious?
• Why don’t all companies make the terms of their ITP public?
• Why don’t more companies require the strictest standards, such as pre-approval by the general counsel and mandatory use of 10b5-1 plans?
• Does the board review trades by insiders on a regular basis? What conversation, if any, takes place between executives and the board around large, single-event sales?
Short summary
We identify potential shortcomings in existing governance practices around the approval of executive equity sales. Why don’t more companies require stricter standards to lessen suspicion around insider equity sales activity? Do boards review trades by insiders on a regular basis?
By David F. Larcker, Brian Tayan
Core Concepts Series. Corporate Governance Research Initiative,
A roadmap to understanding the fundamental concepts of corporate governance based on theory, empirical research, and data. This guide takes an in-depth look at the Principles of Corporate Governance.
Authors: David F. Larcker and Brian Tayan, Stanford Closer Look Series, November 25, 2019
Among the controversies in corporate governance, perhaps none is more heated or widely debated across society than that of CEO pay. The views that American citizens have on CEO pay is centrally important because public opinion influences political decisions that shape tax, economic, and regulatory policy, and ultimately determine the standard of living of average Americans. This Closer Look reviews survey data of the American public to understand their views on compensation. We ask:
• How can society’s understanding of pay and value creation be improved and the controversy over CEO pay resolved?
• How should the level of CEO pay rise with complexity and profitability, particularly among America’s largest corporations?
• Should pay be reformed in the boardroom, or should high pay be addressed solely through the tax code?
• Are negative views of CEO pay driven by broad skepticism and lack of esteem for CEOs? Or do high pay levels themselves contribute to low regard for CEOs?
By David F. Larcker and Brian Tayan
CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, November 2019.
In fall 2019, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of In October 2019, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 3,062 individuals—representative by age, race, political affiliation, household income, and state residence—to understand the American population’s views on current and proposed tax policies.
Key findings include:
--Tax rates for high-income earners are about right
--Majority favor a wealth tax … but not if it harms the economy
--Americans do not want to set limits on personal wealth
--Americans do not believe in a right to universal basic income
--Trust in the ability of the U.S. government to spend tax dollars effectively is low
--Americans believe in higher taxes for corporations who pay their CEO large dollar amounts
--Little appetite exists to break up “big tech”
By David F. Larcker, Brian Tayan, Dottie Schindlinger and Anne Kors, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance and the Diligent Institute, November 2019
New research from the Rock Center for Corporate Governance at Stanford University and the Diligent Institute finds that corporate directors are not as shareholder-centric as commonly believed and that companies do not put the needs of shareholders significantly above the needs of their employees or society at large. Instead, directors pay considerable attention to important stakeholders—particularly their workforce—and take the interests of these groups into account as part of their long-term business planning.
• While directors are largely satisfied with their ESG-related efforts, they do not believe the outside world understands or appreciates the work they do.
• Directors recognize that tensions exist between shareholder and stakeholder interests. That said,
most believe their companies successfully balance this tension.
• In general, directors reject the view that their companies have a short-term investment horizon in
running their businesses.
In the summer of 2019, the Diligent Institute and the Rock Center for Corporate Governance at Stanford University surveyed nearly 200 directors of public and private corporations globally to better understand how they balance shareholder and stakeholder needs.
by David F. Larcker and Brian Tayan, Stanford Closer Look Series, October 7, 2019
A reliable system of corporate governance is considered to be an important requirement for the long-term success of a company. Unfortunately, after decades of research, we still do not have a clear understanding of the factors that make a governance system effective. Our understanding of governance suffers from 1) a tendency to overgeneralize across companies and 2) a tendency to refer to central concepts without first defining them. In this Closer Look, we examine four central concepts that are widely discussed but poorly understood.
We ask:
• Would the caliber of discussion improve, and consensus on solutions be realized, if the debate on corporate governance were less loosey-goosey?
• Why can we still not answer the question of what makes good governance?
• How can our understanding of board quality improve without betraying the confidential information that a board discusses?
• Why is it difficult to answer the question of how much a CEO should be paid?
• Are U.S. executives really short-term oriented in managing their companies?
David F. Larcker, Brian Tayan, Vinay Trivedi, and Owen Wurzbacher, Stanford Closer Look Series, July 2, 2019
Currently, there is much debate about the role that non-investor stakeholder interests play in the governance of public companies. Critics argue that greater attention should be paid to the interest of stakeholders and that by investing in initiatives and programs to promote their interests, companies will create long-term value that is greater, more sustainable, and more equitably shared among investors and society. However, advocacy for a more stakeholder-centric governance model is based on assumptions about managerial behavior that are relatively untested. In this Closer Look, we examine survey data of the CEOs and CFOs of companies in the S&P 1500 Index to understand the extent to which they incorporate stakeholder needs into the business planning and long-term strategy, and their view of the costs and benefits of ESG-related programs.
We ask:
• What are the real costs and benefits of ESG?
• How do companies signal to constituents that they take ESG activities seriously?
• How accurate are the ratings of third-party providers that rate companies on ESG factors?
• Do boards understand the short- and long-term impact of ESG activities?
• Do boards believe this investment is beneficial for the company?
By David F. Larcker, Brian Tayan, Vinay Trivedi and Owen Wurzbacher, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, July 2019
In spring 2019, the Rock Center for Corporate Governance at Stanford University surveyed 209 CEOs and CFOs of companies included in the S&P 1500 Index to understand the role that stakeholder interests play in long-term corporate planning.
Key Findings
• CEOs Are Divided On Whether Stakeholder Initiatives Are A Cost or Benefit to the Company
• Companies Tout Their Efforts But Believe the Public Doesn’t Understand Them
• Blackrock Advocates … But Has Little Impact
By David F. Larcker, Brian Tayan
Core Concepts Series. Corporate Governance Research Initiative, June 2019
A roadmap to understanding the fundamental concepts of corporate governance based on theory, empirical research, and data. This guide will take an in-depth look at Shareholders and Activism.
By Brandon Boze, Margarita Krivitski, David F. Larcker, Brian Tayan, and Eva Zlotnicka
Stanford Closer Look Series
May 23, 2019
Recently, there has been debate among corporate managers, board of directors, and institutional investors around how best to incorporate ESG (environmental, social, and governance) factors into strategic and investment decision-making processes. In this Closer Look, we examine a framework informed by the experience of ValueAct Capital and include case examples.
We ask:
• What is the investment horizon prevalent among most companies today?
• Do companies miss long-term opportunities because of a focus on short-term costs?
• How many companies have an opportunity to profitably invest in ESG solutions?
• What factors determine whether a company can profitably invest in ESG solutions?
• Can investors earn competitive risk-adjusted returns through ESG investments?
• If so, how widespread is this opportunity?
This Research Spotlight provides a summary of the academic literature on environmental, social, and governance (ESG) activities including:
• The relation between ESG activities and firm value
• The impact of environmental and social engagements on firm performance
• The market reaction to ESG events
• The relation between ESG and agency problems
• The performance of socially responsible investment (SRI) funds
This Research Spotlight expands upon issues introduced in the Quick Guide “Investors and Activism”.
This Research Spotlight provides a summary of the academic literature on how dual-class share structures influence firm value and corporate governance quality. It reviews the evidence of:
• The relation between dual-class shares and governance quality
• The relation between dual-class shares and tax avoidance
• The relation between dual-class shares and firm value and performance
This Research Spotlight expands upon issues introduced in the Quick Guide “The Market for Corporate Control.”
By Courtney Hamilton, David F. Larcker, Stephen A. Miles, and Brian Tayan, Stanford Closer Look Series, February 15, 2019
Two decades ago, McKinsey advanced the idea that large U.S. companies are engaged in a “war for talent” and that to remain competitive they need to make a strategic effort to attract, retain, and develop the highest-performing executives. To understand the contribution of the human resources department to company strategy, we surveyed 85 CEOs and chief human resources officers at Fortune 1000 companies. In this Closer Look, we examine what these senior executives say about the contribution of HR to the strategic efforts and financial performance of their companies.
We ask:
• What role does HR play in the development of corporate strategy?
• Does HR have an equal voice or is it junior to other members of the senior management team?
• Do boards see HR and human capital as critical to corporate performance?
• How do boards ascertain whether management has the right HR strategy?
• How adept are companies at using data from HR systems to learn what programs work and why?
By David F. Larcker and Brian Tayan, Stanford Closer Look Series, December 3, 2018
Companies are required to have a reliable system of corporate governance in place at the time of IPO in order to protect the interests of public company investors and stakeholders. Yet, relatively little is known about the process by which they implement one. This Closer Look, based on detailed data from a sample of pre-IPO companies, examines the process by which companies go from essentially having no governance in place at the time of their founding to the fully established systems of governance required of public companies by the Securities and Exchange Commission. We examine the vastly different choices that companies make in deciding when and how to implement these standards.
We ask:
• What factors do CEOs and founders take into account in determining how to implement governance systems?
• Should regulators allow companies greater flexibility to tailor their governance systems to their specific needs?
• Which elements of governance add to business performance and which are done only for regulatory purposes?
• How much value does good governance add to a company’s overall valuation?
• When should small or medium sized companies that intend to remain private implement a governance system?
By David F. Larcker, Brian Tayan, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, November 2018
In summer and fall 2018, the Rock Center for Corporate Governance at Stanford University surveyed 53 founders and CEOs of 47 companies that completed an Initial Public Offering in the U.S. between 2010 and 2018 to understand how corporate governance practices evolve from startup through IPO.
David F. Larcker, Stephen A. Miles, Brian Tayan, and Kim Wright-Violich
Stanford Closer Look Series, November 8, 2018
CEO activism—the practice of CEOs taking public positions on environmental, social, and political issues not directly related to their business—has become a hotly debated topic in corporate governance. To better understand the implications of CEO activism, we examine its prevalence, the range of advocacy positions taken by CEOs, and the public’s reaction to activism.
We ask:
• How widespread is CEO activism?
• How well do boards understand the advocacy positions of their CEOs?
• Are boards involved in decisions to take public stances on controversial issues, or do they leave these to the discretion of the CEO?
• How should boards measure the costs and benefits of CEO activism?
• How accurately can internal and external constituents distinguish between positions taken proactively and reactively by a CEO?
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1. David F. Larcker and Brian Tayan
Corporate Governance Research Initiative
Stanford Graduate School of Business
THE MARKET FOR
CORPORATE CONTROL
2. • The price of a stock reflects not only the value of corporate assets but also
the performance of management in realizing that value.
• The board of an underperforming company has the choice:
– Replace management, or
– Sell entire company to new owners who can manage its assets more
profitability (e.g., change strategy, cost structure, capital structure, etc.).
• The market for corporate control puts pressure on CEO to perform or risk
sale of the company.
MARKET FOR CORPORATE CONTROL
“The lower the stock price, relative to what it could be with more efficient
management, the more attractive the takeover becomes to those who
believe that they can manage the company more efficiently.”
Manne (1965)
3. • The market for corporate control consists of all mergers, acquisitions, and
reorganizations—including those by a competitor, a conglomerate, or a
private equity buyer.
• The company making the offer is the acquirer (or bidder); the subject of the
offer is the target.
• When the target is open to receiving an offer the acquisition is said to be
friendly. Otherwise, it is hostile.
• In a tender offer, the acquirer makes an offer directly to the target
shareholders to purchase their shares at a stated price.
• In a proxy contest, the acquirer asks target shareholders to elect a dissident
slate of directors to approve the deal.
THE MARKET FOR CORPORATE CONTROL
4. • Financial synergies. The acquiring firm believes it can increase profits
through revenue improvements, cost reduction, or vertical integration. This
is the logic behind a strategic buyer.
• Diversification. Two companies whose earnings are uncorrelated might
benefit by relying on the capital generated when one business is thriving to
help the other when it is struggling. This is the logic behind a conglomerate
structure.
• Change in ownership. New owner group might have superior access to
capital, managerial expertise, or other resources. This is the logic behind a
private equity buyer.
STRATEGIC REASONS FOR AN ACQUISITION
5. • Empire building. The acquirer purchases a target primarily for the sake of
managing a larger enterprise.
• Hubris. Overconfidence on the part of management that it can more
efficiently manage a target than current owners can.
• Herding behavior. The senior management of one company pursues an
acquisition because its competitors have recently completed acquisitions.
• Compensation incentives. The management of the target company agrees
to an acquisition primarily because it stands to receive a large payment
upon change in control.
NONSTRATEGIC REASONS FOR AN ACQUISITION
The average CEO of a large U.S. company stands to receive $29 million in
cash and accelerated equity grants following a change in control.
Equilar (2007)
6. • Research has routinely shown that markets expect the incremental value of
an acquisition to flow to the target rather than to the acquirer.
• The target:
– Receives double-digit takeover premium offer.
– Experiences greater excess returns in hostile deals.
– Experiences greater excess returns in all-cash deals.
• The acquirer:
– Experiences no excess returns following bid.
– Experiences negative excess returns for hostile bid.
– Experiences greater declines if equity-financed bid.
THE EXPECTED VALUE OF A TAKEOVER
Eckbo (2009); Servaes (1991); Andrade, Mitchell, and Stafford (2001); Martynova and Renneboog (2008);
Goergen and Renneboog (2004)
7. • Research has also shown that acquirers realize less value following a
merger than originally expected.
• The acquirer:
– Underperforms peers on a one- to three-year basis.
– Performs worse if acquisition is financed with equity.
– Decreases investment in working capital and cap ex.
• Acquisitions are highly disruptive:
– Require significant management attention.
– Lead to elevated turnover up to 10 years following the deal.
THE REALIZED VALUE OF A TAKEOVER
Martynova and Renneboog (2008); Krug and Shill (2008)
8. • A company that does not want to become the target of an unsolicited
takeover might adopt defense mechanisms to discourage or prevent a bid.
• Antitakeover protections might give a company time to pursue long-term
value creation without threat of takeover; or to enhance bargaining power
to secure a higher bid.
• Common antitakeover protections include:
– Poison pill (9% of companies currently have in place)
– Dual-class shares (10%)
– Staggered board (53%)
– Restricted rights to call a special meeting (46%)
– Shareholders cannot vote by written consent (73%)
ANTITAKEOVER PROTECTIONS
SharkRepellent (2014)
9. • A poison pill grants current shareholders the right to acquire additional
shares at a deep discount to market (e.g., $0.01 per share).
• The poison pill is triggered if a shareholder accumulates an ownership
position above a threshold (e.g., 15 to 20 percent).
• If the threshold is exceeded, the market is flooded with new shares, making
it prohibitively expensive to gain control.
POISON PILL
• Companies that adopt a plan are twice as likely to defeat an unsolicited offer.
• If deal is accepted, premium is 5% to 10% higher. But, if deal is defeated, the
target’s stock price declines by 14%.
• Market reaction to adoption of plan is mixed. Negative, if company is perceived
to be a takeover candidate. Positive or neutral otherwise.
Brickley, Coles, and Terry (1994); Ryngaert (1988)
10. • In a staggered board, directors are grouped into three classes, each of
which is elected to a three-year term. Only one class stands for election in a
given year.
• An activist must win two elections, one year apart, to gain majority control.
• A staggered board brings greater stability to the board; however, it is a
formidable obstacle (particularly when coupled with a poison pill).
STAGGERED BOARDS
• Companies with a staggered board are significantly more likely to defeat a bid. Between
1996 and 2000, no activist gained control of a staggered board through a proxy contest.
• Companies with a staggered board that get acquired do not receive a materially higher
takeover premium (54% v. 50%).
• Market reaction to decision to stagger (or destagger) board is mixed.
Bebchuk, Coates, and Subramanian (2002); Guo, Kruse, and Nohel (2008); Cremers, Litov, and Sepe (2014);
Ge, Tanlu, and Zhang (2014)
11. • A company’s state of incorporation is important because state law dictates
most governing rights. A company might reincorporate to a state with more
protective laws.
• Example of restrictive state law (Pennsylvania):
– Directors can consider impact of deal on stakeholders.
– Voting rights are curtailed for shareholders owning > 20%.
– Short-term profits must be disgorged.
– Severance must be provided to employees terminated in a deal; labor
contracts cannot be terminated.
STATE OF INCORPORATION
• Shareholders have a negative reaction to restrictive state laws.
• Companies that opt out of restrictive provisions experience
positive returns.
Szewczyk and Tsetsekos (1992); Subramanian (2003)
12. • A company with dual-class shares has more than one class of common
shares; each class typically has proportional ownership interests but
disproportionate voting rights.
• The difference between economic interest and voting interest is known as
the “wedge”.
• The class with favorable voting rights typically does not trade in the market
but is instead held by insiders, founders, or another shareholder friendly to
management.
DUAL-CLASS SHARES
Companies with dual-class shares might have lower governance quality:
• Shareholders react more negatively to acquisitions.
• Shareholders react more negatively to large capital expenditures.
• CEO compensation is higher (as size of wedge increases).
Masulis, Wang, and Xie (2009); Gompers, Ishii, and Metrick (2010)
13. Summary of defenses, from most protective to least protective.
1. Companies that have either dual-class shares or staggered boards
and prohibitions on shareholder rights to call special meetings or act by
written consent.
2. Companies with staggered boards but no limitations on shareholder rights
to call special meetings or act by written consent.
3. Companies with annually elected boards but prohibitions on shareholder
rights to call special meetings or act by written consent.
4. Companies with annually elected boards and full shareholder rights to call
a special meeting or act by written consent.
5. Companies with no antitakeover provisions.
SUMMARY OF ANTITAKEOVER PROTECTIONS
Daines and Klausner (2001)
14. • Antitakeover protections generally reduce governance quality and
shareholder value.
• In evaluating antitakeover measures, shareholders and the board might
consider the following:
1. Does the company require exposure to the capital markets to keep
management “in check”? Or, are other governance features sufficient?
2. What are the motives of potential acquirers? Are they consistent with the
long-term objectives of the company?
3. Are antitakeover defenses adopted for shareholder protection or to entrench
management?
CONCLUSION
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