1. Corporate Antitakeover Defenses
Description
Brickley/Lease/Smith (1988), Table A.1.
Example: Poison Pills
Firms issue rights to shareholders. These rights allow shareholders to purchase shares in surviving firm (bidder) at a substantial discount (50%) from the market price. However, (target) firm’s directors can postpone date when these right become exercisable. 1 1

2. Are corporate antitakeover defenses in the interest of shareholders?
No.
Discourages takeovers (lowers probability of a takeover).
Yes.
Encourages higher premia. Target managers’ bargaining position improves.
Of course, since shareholders have to vote to approve such defenses. 2 2

3. Earlier studies: Zero market reaction.
Stock Market’s reaction to announcements of corporate antitakeover defenses.
Earlier studies: Zero market reaction.
Tale (Tail !) of the dogs that did not bark!
Did the stock market anticipate announcements of corporate antitakeover defenses?
Bhagat-Jefferis (1991): Yes. Table 7.
After adjustment for anticipation: -1% 3 3

4. Brickley/Lease/Smith (1988)
Over 95% of management-sponsored antitakeover provision proposals pass.
Who votes for such proposals? (Table 2)
Managers and directors.
Pressure-sensitive institutions (insurance companies, bank trusts)
Who votes against such proposals?
Unaffiliated blockholders.
Pressure-resistant institutions (public pension funds, mutual funds, endowments).
Question: Costs on shareholders of understanding firm-value consequences of these and other proposals on a proxy statement. 4 4

5. Over 95% of management-sponsored proposals pass? Why?
Bhagat/Jefferis (1991): Managers only propose amendments that are (very) likely to pass.
Table 7: As votes controlled by ESOPs (affiliated investment plans) increases, managers are more likely to propose antitakeover amendments.
Table 7: As votes controlled by CEO/officers/directors increases, managers are less likely to propose antitakeover amendments. 5 5

6. Table 7: As votes controlled by CEO/officers/directors increases, managers are less likely to propose antitakeover amendments. Why?
Do not want to discourage takeovers (and associated premia).
As they own more shares, less concerned of a hostile takeover and job-loss. 6 6

7. Relational Investing and Firm Performance Bhagat-Black-Blair (2001)
Institutional investors (mutual funds, pension funds) have not been very effective in increasing long-term shareholder value.
Why?
Business acumen of institutional investors.
Incentives of institutional investors. 6 6

8. Hedge Fund Activism, Brav-Jiang-Kim (2010) Differences between
Institutional investors (mutual fund managers, pension fund managers) and
Hedge fund managers
Business acumen.
Incentives: a) Performance fees: 20% of excess returns
b) Significant investment of their personal funds in the hedge fund 6 6

9. Incentives: a) Performance fees: 20% of excess returns
Differences between
Institutional investors (mutual fund managers, pension fund managers) and
Hedge fund managers
Business acumen.
Incentives: a) Performance fees: 20% of excess returns
b) Significant investment of their personal funds in the hedge fund
Regulation: Hedge funds do not have to be well-diversified (can own large positions in target firm).
Fewer conflicts of interest.
Longer investment horizon. 6 6