Your browser does not support the PubReader view.
Go to this page to see a list of supporting browsers.
Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 24, No. 3, pp.287-331
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2011
Received 09 Nov 2010 Revised 12 Jan 2011 Accepted 19 Jan 2011

Managerial Entrenchment and Antitakeover Provisions in Japan

Kaoru Hosono ; Miho Takizawa ; Kotaro Tsuru
Corresponding Author, Visiting Fellow, Gakushuin University, Department of Economics, 1-5-1 Mejiro, Toshima-ku, Tokyo 171-8588, Japan, Tel: +81-3-3986-0221, Fax: +81-3-5992-1005 kaoru.hosono@gakushuin.ac.jp
Associate Professor, Toyo University, Department of Economics, 5-28-20 Hakusan, Bunkyoku, Tokyo 112-8606, Japan, Tel: +81-3-3945-7423, Fax: +81-3-3945-7667 takizawa@toyo.jp
Senior fellow, Research Institute of Economy, Trade and Industry, 11th Floor, Annex, Ministry of Economy, Trade, and Industry (METI), 1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8901, Japan, Tel: +81-3-3501-8289, Fax: +81-3501-8416 tsuru-kotaro@rieti.go.jp

JEL Classification: G34

Abstract

We analyze the characteristics of the firms that introduce antitakeover provisions using a Japanese firm-level dataset. We find that the likelihood of the adoption of antitakeover provisions is correlated positively with firm age and the proportion of cross-shareholding and negatively with the share of managerial ownership. The adoption of antitakeover measures is suggested to be motivated by self-protection on the part of managers and is influenced by the conflicts of interest between managers and shareholders. We also find that the operating performance or the stock market valuation does not affect the likelihood of the adoption of antitakeover provisions.

Keywords:

Antitakeover provisions, Entrenchment, Japan

Acknowledgments

The authors are grateful to the Editor, Referees, and the participants at the seminar of RIETI for their helpful comments and suggestions. K. Hosono and K. Tsuru acknowledge the support of RIETI and the Grant-in-Aid for Scientific Research (C) No. 20530228, Japan Society for the Promotion of Science. K. Hosono also acknowledges the support of the Grant-in-Aid for Scientific Research (S) No. 22223004, Japan Society for the Promotion of Science. Views expressed in this paper are those of the authors and do not necessarily reflect those of the institutions to which the authors belong.

References

  • Bebchuk, L. A., Cohen, A., and Farrel, A. “What Matters in Corporate Governance.” Review of Financial Studies 22 (No. 2 2009): 783-827. [https://doi.org/10.1093/rfs/hhn099]
  • Bhagat, S., and Jefferis, R. H. “Voting Power in the Proxy Process, the Case of Antitakeover Charter Amendments.” Journal of Financial Economics 30 (No. 1 1991): 193-225. [https://doi.org/10.1016/0304-405X(91)90042-I]
  • Brickley, J. A., Coles, J. L., and Terry, R. L. “Outside Directors and the Adoption of Poison Pills.” Journal of Financial Economics 35 (No. 3 1994): 371-90. [https://doi.org/10.1016/0304-405X(94)90038-8]
  • Claessens, S., Djankov, S., and Lang, L. “The Separation of Ownership and Control in East Asian Corporations.” Journal of Financial Economics 58 (Nos. 1-2 2000): 81-112. [https://doi.org/10.1016/S0304-405X(00)00067-2]
  • Coates IV, J. “Takeover Defenses in the Shadow of the Pill: A Critique of the Scientific Evidence.” Texas Law Review 79 (No. 2 2000): 271-382.
  • Comment, R., and Schwert, G. W. “Poison or Placebo?: Evidence on the Deterrence and Wealth Effects of Modern Antitakeover Measures.” Journal of Financial Economics 39 (No. 1 1995): 3-43. [https://doi.org/10.1016/0304-405X(94)00823-J]
  • Danielson, M., and Karpoff, J. “On the Uses of Corporate Governance Provisions.” Journal of Corporate Finance 4 (No. 4 1998): 347-71. [https://doi.org/10.1016/S0929-1199(98)00012-1]
  • Danielson, M., and Karpoff, J. “Do Pills Poison Operating Performance?” Journal of Corporate Finance 12 (No. 3 2006): 536-59. [https://doi.org/10.1016/j.jcorpfin.2005.10.001]
  • Davis, G. “Agents without Principles? The Spread of the Poison Pill through the Intercorporate Network.” Administrative Science Quarterly 36 (No. 4 1991): 583-613. [https://doi.org/10.2307/2393275]
  • Davis, G., and Greve, H. “Corporate Elite Networks and Governance Changes in the 1980s.” The American Journal of Sociology 103 (No. 1 1997): 1-37. [https://doi.org/10.1086/231170]
  • Davis, G., and Stout, S. “Organization Theory and the Market for Corporate Control: A Dynamic Analysis of the Characteristics of Large Takeover Targets, 1980-1990.” Administrative Science Quarterly 37 (No. 4 1992): 605-33. [https://doi.org/10.2307/2393474]
  • DeAngelo, H., and Rice, E. M. “Antitakeover Charter Amendments and Stockholder Wealth.” Journal of Financial Economics 11 (Nos. 1-4 1983): 329-60. [https://doi.org/10.1016/0304-405X(83)90016-8]
  • Demsetz, H., and Lehn, K. “The Structure of Corporate Ownership: Causes and Consequences.” Journal of Political Economy 93 (No. 6 1985): 1155-77. [https://doi.org/10.1086/261354]
  • Fama, E. “Agency Problems and the Theory of the Firm.” Journal of Political Economy 88 (No. 2 1980): 288-307. [https://doi.org/10.1086/260866]
  • Fama, E., and Jensen, M. “Separation of Ownership and Control.” Journal of Law and Economics 26 (No. 2 1983): 301-43. [https://doi.org/10.1086/467037]
  • Gompers, P., Ishii, J., and Metrick, A. “Corporate Governance and Equity Prices.” The Quarterly Journal of Economics 118 (No. 1 2003): 107-55. [https://doi.org/10.1162/00335530360535162]
  • Jarrell, G. A., and Poulsen, A. B. “Shark Repellents and Stock Prices: The Impact of Antitakeover Charter Amendments since 1980.” Journal of Financial Economics 19 (No. 1 1987): 127-68. [https://doi.org/10.1016/0304-405X(87)90032-8]
  • Jensen, M. “The Agency Costs of Free Cash Flow, Corporate Finance and Takeovers.” American Economic Review 76 (No. 2 1986): 323-9.
  • Jensen, M. “The Eclipse of the Public Corporation.” Harvard Business Review 67 (Sept.-Oct. 1989): 61-74.
  • Lehn, K., Patro, S., and Zhao, M. “Governance Indexes and Valuation: Which Causes Which?” Journal of Corporate Finance 13 (No. 5 2007): 907-28. [https://doi.org/10.1016/j.jcorpfin.2007.07.002]
  • Linn, S. C., and McConnell, J. J. “An Empirical Investigation of the Impact of ‘Antitakeover’ Amendments on Common Stock Prices.” Journal of Financial Economics 11 (Nos. 1-4 1983): 347-76. [https://doi.org/10.1016/0304-405X(83)90017-X]
  • Malatesta, P., and Walkling, R. “Poison Pill Securities: Stockholder Wealth, Profitability, and Ownership Structure.” Journal of Financial Economics 20 (Nos. 1-2 1988): 347-76. [https://doi.org/10.1016/0304-405X(88)90050-5]
  • Mallette, P., and Fowler, K. “Effects of Board Composition and Stock Ownership on the Adoption of Poison Pill.” The Academy of Management Journal 35 (No. 5 1992): 1010-35. [https://doi.org/10.2307/256538]
  • Manne, H. “Mergers and the Market for Corporate Control.” Journal of Political Economy 73 (No. 2 1965): 110-26. [https://doi.org/10.1086/259000]
  • Milhaupt, C. “In the Shadow of Delaware?: The Rise of Hostile Takeovers in Japan.” Columbia Law Review 105 (No. 7 2005): 2171-216.
  • Morck, R., Shleifer, A., and Vishny, R. “Management Ownership and Market Valuation.” Journal of Financial Economics 20 (Nos. 1-2 1988): 293-315. [https://doi.org/10.1016/0304-405X(88)90048-7]
  • Rose, C. “Takeover Defenses’ Influence on Managerial Incentives.” International Review of Law and Economics 25 (No. 4 2005): 556-77. [https://doi.org/10.1016/j.irle.2005.12.002]
  • Ryngaert, M. “The Effect of Poison Pill Securities on Shareholder Wealth.” Journal of Financial Economics 20 (Nos. 1-2 1988): 377-417. [https://doi.org/10.1016/0304-405X(88)90051-7]
  • Schaede, U. Competition for Corporate Control: Institutional Investors, Investment Funds, and Hostile Takeovers in Japan. Working Paper Series Center on Japanese Economy and Business Columbia Business School 248, 2006.
  • Shleifer, A., and Summers, L. “Breach of Trust in Hostile Takeovers.” In A. Auerbach (Ed.), Corporate Takeovers: Causes and Consequences. Chicago: University of Chicago Press, pp. 33-68, 1988. [https://doi.org/10.3386/w2342]
  • Straska, M., and Waller, G. “Do Antitakeover Provisions Harm Shareholders?” Journal of Corporate Finance 16 (No. 4 2010): 487-97. [https://doi.org/10.1016/j.jcorpfin.2010.04.004]
  • Strong, J., and Meyer, J. “An Analysis of Shareholder Rights Plans.” Management and Decision Economics 11 (No. 2 1990): 73-86. [https://doi.org/10.1002/mde.4090110201]
  • Sundaramurthy, C. “Corporate Governance within the Context of Antitakeover Provisions.” Strategic Management Journal 17 (No. 5 1996): 377-94. [https://doi.org/10.1002/(SICI)1097-0266(199605)17:5<377::AID-SMJ816>3.0.CO;2-B]
  • Tsuru, K. “Japanese Corporate Governance in Transition.” Seoul Journal of Economics 13 (No. 3 2000): 253-78.
  • Xu, P. “What Are the Characteristics of Companies Prone to Becoming a Hostile Takeover Target?” In H. Miyajima (Ed.), M&A in Japan Toyo Keizai, Inc. Tokyo: Toyo Keizai Inc., pp. 197-221, 2007 (in Japanese).