Hostname: page-component-78c5997874-mlc7c Total loading time: 0 Render date: 2024-11-11T11:25:52.213Z Has data issue: false hasContentIssue false
  • English
  • Français

State Antitakeover Laws and Voluntary Disclosure

Published online by Cambridge University Press:  18 March 2013

Yijiang Zhao ,
Arthur Allen  and
Iftekhar Hasan
Yijiang Zhao
Affiliation:
yzhao@american.edu, Kogod School of Business, American University, 4400 Massachusetts Ave NW, Washington, DC 20016
Arthur Allen
Affiliation:
aallen1@unl.edu, School of Accountancy, University of Nebraska-Lincoln, 307 College of Business Administration, Lincoln, NE 68588
Iftekhar Hasan
Affiliation:
ihasan@fordham.edu, Fordham University, 1790 Broadway FL 11, New York, NY 10019 and Bank of Finland.
Get access Rights & Permissions [Opens in a new window]

Abstract

We test the relationship between takeover protection and voluntary disclosure in a setting of antitakeover laws in a firm’s state of incorporation. After correcting for the endogeneity of firms’ incorporation choices, we find that firms incorporated in states with more antitakeover laws have higher levels of voluntary disclosure and stock market liquidity. Further tests do not support shareholder demands being the driving force for this association. Our findings are consistent with takeover protection and poor disclosure serving as substitute mechanisms for deterring takeovers. Therefore, as antitakeover statutes mitigate takeover threats, they enhance managers’ incentives to disclose more in order to realize capital market benefits.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 2 , April 2013 , pp. 637 - 668
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ajinkya, B.; Bhojraj, S.; and Sengupta, P.. “The Association between Outside Directors, Institutional Investors and the Properties of Management Earnings Forecasts.” Journal of Accounting Research, 43 (2005), 343–376.CrossRefGoogle Scholar
Ali, A.; Chen, T.-Y.; and Radhakrishnan, S.. “Corporate Disclosures by Family Firms.” Journal of Accounting and Economics, 44 (2007), 238–286.CrossRefGoogle Scholar
Amihud, Y. “Illiquidity and Stock Returns: Cross-Section and Time-Series Effects.” Journal of Financial Markets, 5 (2002), 31–56.CrossRefGoogle Scholar
Armstrong, C.; Balakrishnan, K.; and Cohen, D.. “Corporate Governance and the Information Environment: Evidence from State Antitakeover Laws.” Journal of Accounting and Economics, 53 (2012), 185–204.CrossRefGoogle Scholar
Bebchuk, L., and Cohen, A.. “Firms’ Decisions Where to Incorporate.” Journal of Law and Economics, 46 (2003), 383–425.CrossRefGoogle Scholar
Bebchuk, L., and Cohen, A.. “The Costs of Entrenched Boards.” Journal of Financial Economics,78 (2005), 409–433.CrossRefGoogle Scholar
Bebchuk, L.; Cohen, A.; and Ferrell, A.. “What Matters in Corporate Governance?” Review of Financial Studies, 22 (2009), 783–827.CrossRefGoogle Scholar
Bebchuk, L., and Fried, J.. Pay without Performance: The Unfulfilled Promise of Executive Compensation. Cambridge: Harvard University Press (2006).CrossRefGoogle Scholar
Bens, D., and Monahan, S.. “Disclosure Quality and the Excess Value of Diversification.” Journal of Accounting Research, 42 (2004), 691–730.CrossRefGoogle Scholar
Berger, P., and Hann, R.. “Segment Disclosures, Proprietary Costs, and the Market for Corporate Control.” Working Paper, University of Chicago (2002).CrossRefGoogle Scholar
Berger, P., and Hann, R.. “Segment Profitability and the Proprietary and Agency Costs of Disclosure.” Accounting Review, 82 (2007), 869–906.CrossRefGoogle Scholar
Bertrand, M., and Mullainathan, S.. “Enjoying the Quiet Life? Managerial Behavior following Anti-Takeover Legislation.” Journal of Political Economy, 111 (2003), 1042–1075.Google Scholar
Botosan, C., and Plumlee, M.. “A Re-Examination of Disclosure Level and the Expected Cost of Equity Capital.” Journal of Accounting Research, 40 (2002), 21–40.CrossRefGoogle Scholar
Botosan, C., and Stanford, M.. “Managers’ Motives to Withhold Segment Disclosures and the Effect of SFAS No. 131 on Analysts’ Information Environment.” Accounting Review, 80 (2005), 751–771.CrossRefGoogle Scholar
Brennan, M.; Chordia, T.; and Subrahmanyam, A.. “Alternative Factor Specifications, Security Characteristics, and the Cross-Section of Expected Stock Returns.” Journal of Financial Economics,49 (1998), 345–373.CrossRefGoogle Scholar
Brown, S.; Hillegeist, S.; and Lo, K.. “Conference Calls and Information Asymmetry.” Journal of Accounting and Economics, 37 (2004), 343–366.CrossRefGoogle Scholar
Bushee, B.; Matsumoto, D.; and Miller, G.. “Open versus Closed Conference Calls: The Determinants and Effects of Broadening Access to Disclosure.” Journal of Accounting and Economics, 34 (2003), 149–180.CrossRefGoogle Scholar
Bushee, B., and Noe, C.. “Corporate Disclosure Practices, Institutional Investors, and Stock Return Volatility.” Journal of Accounting Research, 38 (2000), 171–202.CrossRefGoogle Scholar
Bushman, R.; Chen, Q.; Engel, E.; and Smith, A.. “Financial Accounting Information, Organizational Complexity and Corporate Governance Systems.” Journal of Accounting and Economics, 37 (2004), 167–201.CrossRefGoogle Scholar
Cheng, S., and Indjejikian, R.. “The Market for Corporate Control and CEO Compensation: Complements or Substitutes.” Contemporary Accounting Research, 26 (2009), 701–728.CrossRefGoogle Scholar
Cheng, S.; Nagar, V.; and Rajan, M.. “Identifying Control Motives in Managerial Ownership: Evidence from Antitakeover Regulation.” Review of Financial Studies, 18 (2005), 637–672.CrossRefGoogle Scholar
Chordia, T.; Subrahmanyam, A.; and Anshuman, V.. “Trading Activity and Expected Stock Returns.” Journal of Financial Economics, 59 (2001), 3–32.CrossRefGoogle Scholar
Comment, R., and Schwert, G.. “Poison or Placebo? Evidence on the Deterrence and Wealth Effects of Modern Antitakeover Measures.” Journal of Financial Economics, 39 (1995), 3–43.CrossRefGoogle Scholar
Cremers, K., and Nair, V.. “Governance Mechanisms and Equity Prices.” Journal of Finance, 60 (2005), 2859–2894.CrossRefGoogle Scholar
Daines, R. “Does Delaware Law Improve Firm Value?” Journal of Financial Economics, 62 (2001), 525–558.CrossRefGoogle Scholar
Edlin, A., and Stiglitz, J.. “Discouraging Rivals: Managerial Rent-Seeking and Economic Inefficiencies.” American Economic Review, 85 (1995), 1301–1312.Google Scholar
Fama, E. “Agency Problem and the Theory of the Firm.” Journal of Political Economy, 88 (1980), 288–308.CrossRefGoogle Scholar
Fama, E., and Jensen, M.. “Separation of Ownership and Control.” Journal of Law and Economics, 26 (1983), 301–325.CrossRefGoogle Scholar
Francis, B.; Hasan, I.; John, K.; and Waisman, M.. “The Effect of State Antitakeover Laws on the Firm’s Bondholders.” Journal of Financial Economics, 96 (2010), 127–154.CrossRefGoogle Scholar
Francis, J.; Nanda, D.; and Olsson, P.. “Voluntary Disclosure, Information Quality, and Costs of Capital.” Journal of Accounting Research, 46 (2008), 53–99.CrossRefGoogle Scholar
Fu, H., and Liu, M.. “How Does Takeover Vulnerability Affect Management Earnings Forecasts?” Working Paper, Texas Christian University (2007).Google Scholar
Gartman, G. State Takeover Laws. Washington, DC: Investor Responsibility Research Center (2000).Google Scholar
Garvey, G., and Hanka, G.. “Capital Structure and Corporate Control: The Effect of Antitakeover Statues on Firm Leverage.” Journal of Finance, 54 (1999), 519–546.CrossRefGoogle Scholar
Giroud, X., and Mueller, H.. “Does Corporate Governance Matter in Competitive Industries?” Journal of Financial Economics, 95 (2009), 312–331.CrossRefGoogle Scholar
Gompers, P.; Ishii, J.; and Metrick, A.. “Corporate Governance and Equity Prices.” Quarterly Journal of Economics, 118 (2003), 107–155.CrossRefGoogle Scholar
Griliches, Z. R&D, Education, and Productivity: A Retrospective. Cambridge: Harvard University Press (2000).Google Scholar
Hall, B.; Jaffe, A.; and Trajtenberg, M.. “Market Value and Patent Citations: A First Look.” Working Paper, National Bureau of Economic Research (2001).CrossRefGoogle Scholar
Harris, M. “The Association between Competition and Managers’ Business Segment Reporting Decision.” Journal of Accounting Research, 36 (1998), 111–128.CrossRefGoogle Scholar
Healy, P.; Hutton, A.; and Palepu, K.. “Stock Performance and Intermediation Changes Surrounding Sustained Increases in Disclosure.” Contemporary Accounting Research, 16 (1999), 485–520.CrossRefGoogle Scholar
Healy, P., and Palepu, K.. “Information Asymmetry, Corporate Disclosure, and the Capital Markets: A Review of the Empirical Disclosure Literature.” Journal of Accounting and Economics,31 (2001), 405–440.CrossRefGoogle Scholar
Healy, P., and Palepu, K.. “The Fall of Enron.” Journal of Economic Perspectives, 17 (2003), 3–26.CrossRefGoogle Scholar
Heckman, J. “The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models.” Annals of Economic and Social Measurement, 5 (1976), 475–492.Google Scholar
Hilary, G. “Organized Labor and Information Asymmetry in the Financial Markets.” Review of Accounting Studies, 11 (2006), 525–548.CrossRefGoogle Scholar
Hope, O., and Thomas, W.. “Managerial Empire Building and Firm Disclosure.” Journal of Accounting Research, 46 (2008), 591–625.CrossRefGoogle Scholar
Huang, P., and Zhang, Y.. “Does Enhanced Disclosure Really Reduce Agency Costs? Evidence from the Diversion of Corporate Resources.” Accounting Review, 87 (2012), 199–229.CrossRefGoogle Scholar
Jung, M. “Investor Overlap and Diffusion of Disclosure Practices.” Review of Accounting Studies, 18 (2013), 167–206.CrossRefGoogle Scholar
Kaplan, S., and Zingales, L.. “Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?” Quarterly Journal of Economics, 112 (1997), 169–216.CrossRefGoogle Scholar
Karamanou, I., and Vafeas, N.. “The Association between Corporate Boards, Audit Committees, and Management Earnings Forecasts: An Empirical Analysis.” Journal of Accounting Research, 43 (2005), 453–486.CrossRefGoogle Scholar
Karpoff, J., and Malatesta, P.. “The Wealth Effects of Second Generation State Takeover Legislation.” Journal of Financial Economics, 20 (1989), 291–322.CrossRefGoogle Scholar
Khurana, I.; Pereira, R.; and Martin, X.. “Firm Growth and Disclosure: An Empirical Analysis.” Journal of Financial and Quantitative Analysis, 41 (2006), 357–380.CrossRefGoogle Scholar
Kutner, M.; Nachtsheim, C.; and Neter, J.. Applied Linear Regression Models, 4th ed. Boston: McGraw-Hill Irwin (2004).Google Scholar
Kyle, A. “Continuous Auctions and Insider Trading.” Econometrica, 53 (1985), 1315–1335.CrossRefGoogle Scholar
Lang, M., and Lundholm, R.. “Cross-Sectional Determinants of Analyst Ratings of Corporate Disclosures.” Journal of Accounting Research, 31 (1993), 246–271.CrossRefGoogle Scholar
Lang, M., and Lundholm, R.. “Corporate Disclosure Policy and Analyst Behavior.” Accounting Review, 71 (1996), 467–492.Google Scholar
Lesmond, D. “Liquidity of Emerging Markets.” Journal of Financial Economics, 77 (2005), 411–452.CrossRefGoogle Scholar
Leuz, C., and Verrecchia, R.. “The Economic Consequences of Increased Disclosure.” Journal of Accounting Research, 38 (2000), 91–124.CrossRefGoogle Scholar
Lundholm, R., and Myers, L.. “Bringing the Future Forward: The Effect of Disclosure on the Returns-Earnings Relation.” Journal of Accounting Research, 40 (2002), 809–839.CrossRefGoogle Scholar
Mansi, S.; Maxwell, W.; and Wald, J.. “Creditor Protection Laws and the Cost of Debt.” Journal of Law and Economics, 52 (2010), 701–726.CrossRefGoogle Scholar
Masulis, R.; Wang, C.; and Xie, F.. “Corporate Governance and Acquirer Returns.” Journal of Finance, 62 (2007), 1851–1889.CrossRefGoogle Scholar
Nagar, V.; Nanda, D.; and Wysocki, P.. “Discretionary Disclosure and Stock-Based Incentives.” Journal of Accounting and Economics, 34 (2003), 283–309.CrossRefGoogle Scholar
Peterson, C., and Hawker, N.. “Does Corporate Law Matter? Legal Capital Restrictions on Stock Distributions.” Akron Law Review, 31 (1997), 175–228.Google Scholar
Puhani, P. “The Heckman Correction for Sample Selection and Its Critique.” Journal of Economic Survey, 14 (2000), 53–68.CrossRefGoogle Scholar
Qi, Y., and Wald, J.. “State Laws and Debt Covenants.” Journal of Law and Economics, 51 (2008), 179–207.CrossRefGoogle Scholar
Rauh, J. “Own Company Stock in Defined Contribution Pension Plans: A Takeover Defense.” Journal of Financial Economics, 81 (2006), 379–410.CrossRefGoogle Scholar
Romano, R. “The State Competition Debate in Corporate Law.” Cardozo Law Review, 8 (1987), 709–757.Google Scholar
Scharfstein, D. “The Disciplinary Role of Takeovers.” Review of Economic Studies, 55 (1988), 185–199.CrossRefGoogle Scholar
Schwert, G. “Hostility in Takeover: In the Eyes of the Beholder?” Journal of Finance, 55 (2000), 2599–2640.CrossRefGoogle Scholar
Scott, T. “Incentives and Disincentives for Financial Disclosure: Voluntary Disclosure of Defined Benefit Pensions Plan Information by Canadian Firms.” Accounting Review, 69 (1994), 26–43.Google Scholar
Sengupta, P. “Corporate Disclosure Quality and the Cost of Debt.” Accounting Review, 73 (1998), 459–474.Google Scholar
Shleifer, A., and Vishny, R.. “Management Entrenchment: The Case of Manager-Specific Investments.” Journal of Financial Economics, 25 (1989), 123–140.CrossRefGoogle Scholar
Verrecchia, R. “Discretionary Disclosure.” Journal of Accounting and Economics, 5 (1983), 179–194.CrossRefGoogle Scholar
Wagenhofer, A. “Voluntary Disclosure with a Strategic Opponent.” Journal of Accounting and Economics, 12 (1990), 341–363.CrossRefGoogle Scholar
Wald, J., and Long, M.. “The Effect of State Laws on Capital Structure.” Journal of Financial Economics, 83 (2007), 297–319.CrossRefGoogle Scholar
Yu, F. “Accounting Transparency and the Term Structure of Credit Spreads.” Journal of Financial Economics, 75 (2005), 223–242.CrossRefGoogle Scholar
Zhou, X. “Understanding the Determinants of Managerial Ownership and the Link between Ownership and Performance: Comment.” Journal of Financial Economics, 62 (2001), 559–571.CrossRefGoogle Scholar