State Takeover Legislation and Share Values: The Wealth Effects of Pennsylvania's Act 36

Posted: 14 Sep 1999

See all articles by Jonathan M. Karpoff

Jonathan M. Karpoff

University of Washington - Michael G. Foster School of Business

Paul H. Malatesta

University of Washington - Michael G. Foster School of Business

Date Written: June 17, 1994

Abstract

Proponents of state antitakeover legislation argue that previous empirical tests by financial economists of the wealth effects of Pennsylvania's 1990 antitakeover law are biased. We show that the proponents are correct. In particular, firm size, event-time clustering, and non- synchronous trading effects account for the wealth decreases in earlier studies. We also show, however, that both proponents and critics of the Pennsylvania legislation have ignored the earliest press release about it. The wealth effect associated with this announcement is negative, large, and statistically significant. These results therefore are consistent with the hypothesis that the Pennsylvania law decreased company values and with the hypothesis that the initial market reaction is an unbiased estimate of the law's effect on firm values.

JEL Classification: G34, G32

Suggested Citation

Karpoff, Jonathan M. and Malatesta, Paul H., State Takeover Legislation and Share Values: The Wealth Effects of Pennsylvania's Act 36 (June 17, 1994 ). Available at SSRN: https://ssrn.com/abstract=5405

Jonathan M. Karpoff (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353226
Seattle, WA 98195-3200
United States
206-685-4954 (Phone)
206-221-6856 (Fax)

Paul H. Malatesta

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

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