Evidence of Market Overreaction to State Antitakeover Legislation

Abstract

The rise in hostile corporate takeover attempts during the 1980s motivated many states to pass antitakeover legislation, often after lobbying by the management of affected firms. Empirical attempts to assess the impact of such statutes on firm value have yielded mixed results finding either no effect or a significant negative effect. We hypothesize that, while there may be a negative market reaction associated with state antitakeover legislation, the effect is temporary. In empirically examining the effects from the actions of nineteen states, we find that any negative market reactions tend to be followed by roughly equal positive counter‐reactions, suggesting a market overreaction.

Citation

Pugh, W.N. and Jahera, J.S. (1995), "Evidence of Market Overreaction to State Antitakeover Legislation", Managerial Finance, Vol. 21 No. 5, pp. 52-66. https://doi.org/10.1108/eb018518