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The Massachusetts Classified Board Law

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  • L. Swartz

Abstract

This study investigates the impact of the Massachusetts Classified Board Law on shareholder wealth. This state law is the first law to explicitly require a change in the structure of the board of directors of every firm within the state. In addition, restrictive rules on replacing members of the board of directors enable directors to insulate themselves from takeover attempts. We find this law decreased share values by 16 percentage points for firms without anti-takeover amendments. However, firms with a golden parachute outperformed firms without golden parachutes by 23 percent. This supports the hypothesis that financial markets consider many firm characteristics when evaluating the impact of state anti-takeover legislation. The management entrenchment hypothesis is supported for firms without prior anti-takeover charter amendments. The shareholder interest hypothesis is supported for firms with golden parachutes. Copyright Springer 1998

Suggested Citation

  • L. Swartz, 1998. "The Massachusetts Classified Board Law," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 22(1), pages 29-36, March.
    • Handle: RePEc:spr:jecfin:v:22:y:1998:i:1:p:29-36
    DOI: 10.1007/BF02823230
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    References listed on IDEAS

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    1. Jarrell, Gregg A. & Poulsen, Annette B., 1987. "Shark repellents and stock prices : The effects of antitakeover amendments since 1980," Journal of Financial Economics, Elsevier, vol. 19(1), pages 127-168, September.
    2. Ryngaert, Michael & Netter, Jeffry, 1990. "Shareholder Wealth Effects of the 1986 Ohio Antitakeover Law Revisited: Its Real Effects," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 6(1), pages 253-262, Spring.
    3. Karpoff, Jonathan M. & Malatesta, Paul H., 1989. "The wealth effects of second-generation state takeover legislation," Journal of Financial Economics, Elsevier, vol. 25(2), pages 291-322, December.
    4. Travlos, Nickolaos G, 1987. "Corporate Takeover Bids, Methods of Payment, and Bidding Firms' Stock Returns," Journal of Finance, American Finance Association, vol. 42(4), pages 943-963, September.
    5. Margotta, Donald G & McWilliams, Thomas P & McWilliams, Victoria B, 1990. "An Analysis of the Stock Price Effect of the 1986 Ohio Takeover Legislation," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 6(1), pages 235-251, Spring.
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    Cited by:

    1. Bebchuk, Lucian A. & Cohen, Alma, 2005. "The costs of entrenched boards," Journal of Financial Economics, Elsevier, vol. 78(2), pages 409-433, November.
    2. Cain, Matthew D. & McKeon, Stephen B. & Solomon, Steven Davidoff, 2017. "Do takeover laws matter? Evidence from five decades of hostile takeovers," Journal of Financial Economics, Elsevier, vol. 124(3), pages 464-485.

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