Amending Antitakeover Provisions：Good News or Bad News?

Luo Jinhui; Tan Lihua; Chen Yi

doi:doi:10.16538/j.cnki.jfe.2018.12.009

Summary

Since the battle of Vanke broke out, there emerges a surge of antitakeover provision amendment trying to protect the company from corporate raiders in China’s capital markets, which induces a debate about whether the provisions are in favor of existing shareholders’ benefits. However, this debate still remains unsolved. Therefore, this paper aims to figure out whose interests on earth are protected by amending listed companies’ antitakeover provisions.　　Researches about hostile takeover and antitakeover provisions have aroused extensive and constant attentions since 1980s. In July 2015, Baoneng Group bought a large amount of Vanke’s stocks from the capital markets, which led to a tide for antitakeover provision amendment among listed companies in China. According to our results, there are 126 antitakeover provision amendment events of listed companies from 2014 to 2016. From this perspective, the market for corporate control and hostile takeover seem to be a potential threat. However, researches about the above problems under Chinese specific institution background are still quite limited, and these antitakeover provision amendment events provide us a good way to investigate the influence of takeover defense, which has not been clarified by scholars under Chinese capital market yet.　　This study manually collects 116 announcement events of listed companies’ antitakeover provision amendment during the period of 2014−2016, and uses the method of event study to investigate the above question. It finds that: （1） Investors perceive that the event of antitakeover provision amendment is good news on the whole, and thus react positively to related event announcements. During the event window of [−1, 3], the accumulated abnormal return of focal firms is up to about 2.68%, indicating that antitakeover provisions can improve focal firms’ shareholder wealth. （2） Relatively speaking, the positive market reaction to the announcement event of antitakeover provision amendment is less pronounced in private enterprises, in firms having the largest shareholder with higher ownership, and in firms with lower institutional ownership, suggesting that the characteristics of the ownership structure including the nature of property rights, ownership concentration, and institutional ownership are important contingent factors in influencing the value of antitakeover provisions. In addition, this study further finds that ownership concentration, managerial ownership, and the nature of industry monopoly are important determinants of the likelihood of amending antitakeover provisions for listed companies.　　Overall, the potential contributions of this study are as follows: First, this study takes advantage of China’s special institutional background to investigate the short-term market reaction to the event announcement of listed companies’ antitakeover provision amendment by use of the event study method, and in such way we measure the effect of antitakeover provisions on shareholder wealth in China’s capital markets. Second, we find that under different contingent factors, the value of antitakeover provision amending could be varied, which may help us understand the controversial research conclusions before. What’s more, it not only can enrich the literature regarding antitakeover provisions and the market for corporate control, but also can deepen our understanding of listed companies’ antitakeover provision amending behavior, and thus provide some valuable implications for practitioners and references for policy makers about hostile takeover and takeover defense.