Shark repellents and stock prices

Journal

of Financial

Economics

19 (1987) 127-168.

North-Holland

SHARK REPELLENTS AND STOCK PRICES The Effects of Antitakeover Amendments Since 19?30* Gregg A. JARRELL The A lcur Group Inc.. Skokie.

Annette

IL 60077, L’S.4

B. POULSEN

U.S.Secuririesand

Exchunge Commission, Wushingron. DC AJ.i19, USA University o/ Georgia, Czchen.s, GA 30602. CSA

Received October

1985. final version received January

1987

Antitakeover amendments (shark repellents) restrict the transfer of corporate control. On average, the public announcement of antitakeover amendments by 600 firms in the period 1979-1985 has an insignificant effect on the value of announcing firms’ shares. However, different types of amendments have varying effects. Non-fair-price amendments have an average significant negative effect of 2.95% on share prices. while fair-price amendments have an insignificant effect. The more harmful amendments have larger insider holdings and lower institutional holdings. suggesting a partial explanation of why shareholders approve these amendments.

1. Introduction Shark repellents is the popular term for amendments to corporate that put conditions on and restrict the transfer of managerial control.' always subject to approval by a majority vote of shareholders, the forms of shark repellents have changed considerably over the last five

charters Almost specific years in

*The authors are. respectively, former Chief Economist and Deputy Chief Economist, Office of the Chief Economist, U.S. Securities and Exchange Commission. We are deeply indebted to Lynne Davidson for her extraordinary contribution to the research and analysis contained in this article. We also received many helpful suggestions and comments from Harry DeAngelo, Sanjai Bhagat. Robert Comment, Kenneth Lehn, John Pound, Michael Ryngaert, and participants in workshops at the University of Chicago, the University of Utah, Cornell University, the University of Rochester, and Vanderbilt University. We also thank Richard Ruback (the referee) and Michael C. Jensen (the editor of this journal) for their review and comments. The Securities and Exchange Commission. as a matter of policy disclaims responsibility for any private publication or statement by any of its employees. The crews expressed herein are those of the authors and do not necessarily reflect the views of the Commission or of the authors’ colleagues on the staff of the Commission. ‘Easterbrook and Fischel (1983) provide an overview of the general rules that state statutes establish over shareholder voting rights. They point out that state laws are enabling statutes that would tolerate many kinds of voting practices. Fundamental changes in voting practices and other important transfers of corporate control must generally be approved by shareholder vote.

0304-405X/87/53.50

C 1987. Elsevier Science Publishers

B.V. (North-Holland)

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GA. Jurrelland A. B. Pouisen. Shurk repellents and stock prices

response to new takeover techniques and to shareholder resistance to amendments designed primarily to entrench incumbent management. The popularity of these modem antitakeover amendments has increased dramatically since the invention of the fair-price amendment. Fair-price amendments are simply requirements for supermajority voting approval by shareholders for transfers of managerial control that take effect only if the board does not approve of the transaction or if the bidder does not offer a ‘fair price’, usually at least equal to the highest price paid by the bidder for any shares it has already acquired. Once rare among large corporations, antitakeover amendments are now common. A recent survey of Standard and Poor’s (S&P) 500 corporations shows that 112 firms had passed antitakeover amendments as of the end of 1984 [Investor Responsibility Research Center (1985a)]. Only 13 of these firms had passed amendments as of the end of 1982. Moreover, 77 of 99 firms passing amendments in 1983 and 1984 adopted the fair-price requirement. In 1985, an additional 65 of the S&P 500 firms had adopted fair-price amendments [Investor Responsibility Research Center (1986)]. The fair-price amendment is a remarkably popular innovation, with both corporate managements and their voting shareholders. Antitakeover amendments, however, are not popular with everyone. Pound (forthcoming) concludes that the actual behavior of takeover targets protected by these amendments is generally contrary to shareholders’ interests. A recent study by the Office of the Chief Economist [OCE (1984)] of the U.S. Securities and Exchange Commission (SEC) concludes that the abnormal stock returns, averaged over 131 exchange-listed firms around the time of release of the proxy statement announcing the antitakeover amendment, is - 1.78%. Many knowledgeable commentators have complained that the wave of antitakeover amendments will disenfranchise equity holders, seriously harming national economic welfare. The SEC disclosure rules reflect this concern by requiring that proxy forms describing antitakeover proposals contain specific language warning shareholders about the possibility of entrenchment and of foregone takeover premiums. A form of shark repellent not considered directly here is the poison pill. Poison pills are rights or securities issued to shareholders giving them valuable benefits in the event of an acquisition bid; they result in takeovers becoming prohibitively expensive. (The pill is sometimes implemented with the use of preferred stock. The granting of authorization to the board to issue preferred stock is included in our study.) The pill defense has been the subject of particular concern because the pill can be adopted without shareholder approval. An OCE study (1986) finds that, on average, 245 poison pills issued from 1981 through 1986 have a negative effect on stock prices of 1.7% at their announcement. This new defense is a subject that invites further research. Studies of antitakeover provisions are few and inconclusive. DeAngelo and Rice (1983) examine New York Stock Exchange (NYSE)-listed firms adopting

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antitakeover amendments during the 1971-1979 period and show negative (about 1%) and statistically insignificant abnormal stock returns around the public announcement of the proposed amendments.2 Linn and McConnell (1983) investigate the abnormal returns to public announcement of antitakeover amendments during the 1960-1980 period for 475 NYSE-listed firms.3 They find statistically significant, positive abnormal stock returns, on average, accompanying public announcement for these cases. Although there are important differences between these two studies in the composition of their samples and the selection of specific periods over which market returns are measured, the overall impression is that antitakeover amendments passed before 1980 had only a trivial effect on equity value. Our study examines a total of 649 antitakeover amendments proposed between January 1979 and May 1985. About two-thirds of this total are exchange-listed lirms, and the rest are firms traded over the counter. Of these 649 firms, 554 proposed their amendments after 1982, reflecting the recent increase in the popularity of this device. Our sample consists of 487 fair-price amendments, 104 supermajority amendments, and 58 classified-board or authorized-preferred provisions. Supermajority amendments require the approval of at least two-thirds (and sometimes up to 90%) of the shareholders for a merger, tender offer, or other business combination. A classified-board provision insures that only a fraction of the board is elected in any one year. Authorization to issue preferred stock allows the board to establish the provisions of preferred stock it may issue in defense of a hostile takeover bid. For our sample, we compute abnormal stock returns for various periods around the date the proxy statements announcing the antitakeover amendments were signed (usually the same day or the day before the proxies are mailed) and measure the different mean returns among the several broad types of amendments. Because the amendments vary significantly in their provisions, it is important to distinguish between their relative effects. The longest ‘event window’ over which returns are cumulated is from 20 days before to 10 days after the proxy-signing date. In addition to the impact on stock returns, we examine the extent of institutional and insider stockholdings for each proposing firm. We consider the role of institutional and insider holders in the approval of antitakeover amendments and in the type of amendment chosen. ‘DeAngel and Rice review ah proposed amendments during their sample period and delete observations in which the proxy statement contained confounding events, such as proposals to change the number of shares outstanding and other proposals affecting corporate control. Overall, DeAngelo and Rice interpret their evidence as weak preliminary support for the managerial entrenchment hypothesis. amendments over several ‘Linn and M c C onnell consider the impact of proposed antitakeover periods, centered on several events including the board of directors’ meeting date. the proxy mailing date. and the stockholders’ meeting date. In each case, they find weak support for the hypothesis that these amendments benefit shareholders.

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There are several reasons for believing that our sample of proposed amendments could show significant stock price results despite the generally insignificant findings of previous studies. First, our sample is very large, which should reduce the level of statistical noise in measuring stock returns. Second, over 85% of the current sample comprises amendments proposed after 1982, which have not been studied before. Third. the sample is dominated by fair-price amendments, which have become common only since 1982. Finally, there have been many changes in the market for corporate contra! that may cause modern antitakeover amendments to have relatively larger effects on shareholder wealth. For example, state antitakeover laws have been largely invalidated since 1982, and antitrust regulators have lowered the barriers to mergers between large firms and between competitors since 1980.4 These developments could cause antitakeover amendments and other defensive actions to have a greater impact on firm value. Briefly, the stock returns data show an average loss of 1.25% for the entire sample. Separating the amendments by type reveals that fair-price amendments have very little effect on stock value ( - 0.65%) whereas the non-fair-price amendments, including supermajority, authorization-of-preferred-stock, and classified-board amendments have substantial negative effects (almost 3% of share price). The composition of stockholders of proposing firms is important for understanding both the economic effects of particular kinds of amendments and how the approved amendments receive a majority of shareholder votes. Large insider holdings can help management win majority shareholder approval of an amendment that reduces stock value. Also, an 80% supermajority vote requirement to effect a change in control of the firm grants veto power to insiders holding 20% of the shares. Stock price reactions to antitakeover amendments may well be a function of the degree of independence the amendments grant to insiders. Institutional stockholdings may shed light on the important issue of rational voting. Sophisticated, well-informed shareholders such as institutions should vote in accordance with their economic interests more consistently than lessinformed shareholders. This assumption implies that value-decreasing amendments should be proposed by firms having relatively low institutional stockholdings (and relatively high insider holdings). Also by this reasoning, specific amendments that achieve widespread acceptance among institutional stockholders should not depress stock prices materially. We find that those amendments having the most negative effect on stock price (non-fair-price amendments) are also the amendments adopted by firms 41n June 1982, the Supreme Court struck down the Illinois Business Take-Over Act on the grounds that it preempted the federal law and was overly burdensome to interstate commerce [Edgar v. Mire, 102 S. Ct. 2629 (1982)]. This decision effectively invalidated most antitakeover statutes passed by states since 1970.

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with the lowest percentage of institutional holders and the highest percentage of insider holders. These results help explain how these harmful amendments receive shareholder approval. The remainder of this paper is organized as follows. In section 2, we define the various kinds of antitakeover amendments and describe how they operate. Section 3 presents arguments for why shark repellents harm or benefit shareholders. Our data and methodology are described in section 4, and section 5 details our empirical results. The concluding section summarizes our findings and presents certain implications. 2. How antitakeover

amendments operate

Antitakeover amendments generally operate by imposing new conditions that must be satisfied before managerial control of the corporation is changed, whether through a tender offer, through a merger, or by replacement of the board of directors. The amendments are almost always proposed by management, and they almost always require majority voting approval by shareholders. Also, it is extremely rare for a proposed antitakeover amendment to be rejected by voting shareholders. The Corporate Governance Bulletin of the Investor Responsibility Research Center (1985b) reports voting results on antitakeover proposals suggested by public companies. Among 273 proposing firms from 1983 through September 1984, shareholders rejected the proposed amendments in only 15 cases. 2.1. Supermajority

amendments

Most state corporation laws set the minimum approval required for mergers and other important control transactions at either 50% or two-thirds of the voting shares. As noted above, supermajority amendments require approval by holders of at least two-thirds (and sometimes as much as 90%) of the voting power of the outstanding capital stock. This provision is almost always accompanied by a lock-in provision that requires the same supermajority voting approval to change this and related amendments. Without the lock-in, of course, simple majority approval would usually be sufficient to undo the supermajority requirement for changing managerial control. These provisions may apply also to (or only to) changing the firm’s board of directors. Pure supermajority provisions are very rare today, having been replaced by similar provisions that are triggered either by board action or by the type of takeover bid received by the target firm. In some instances, managements of firms with pure supermajority provisions have been unable to eliminate them from the firm’s charter. Indeed, takeover specialists generally advise against adopting a pure supermajority amendment because it can seriously limit the board’s flexibility in any future takeover negotiations. If the board is able to

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repellentsand

stock prtces

determine when and if the supermajority provisions will be in effect, the amendment is said to have a board-out clause.

2.2. Fair-price amendments The fair-price amendment is a supermajority provision with a board-out clause and an additional clause waiving the supermajority requirement if the offerer agrees to pay a so-called fair price for all purchased shares.’ The fairness of the offer is determined in several ways. Most commonly, the fair price is defined as the highest price paid by the bidder for any shares it has acquired in the target firm durin g a specified period. There may be an additional requirement that the premium over current market price offered in any subsequent tender offer or merger be equal to the highest premium over market price paid by the acquirer in obtaining his or its current equity position in the target. Less frequently there are requirements that a fair-offer price must exceed some multiple of the target’s reported earnings, the historical high price-earnings ratio of the acquirer, or the target’s stated per-share book value. Thus, in its most common form, the fair-price amendment requires supermajority approval of two-tier takeover bids that are not approved by the target’s board of directors. Hostile bidders can avoid the supermajority requirement by making a uniform offer for all or some amount less than all outstanding shares (subject to prorationing under federal law if the offer is oversubscribed). If the acquirer attempts to purchase the remaining shares with a subsequent merger or tender offer, it must then pay the uniform, fair price to avoid the supermajority requirement. Although fair-price amendments are described as devices designed to encourage bidders to negotiate directly with the target’s board, the hostile bidder can with relative ease structure a tender offer to avoid the supermajority requirement. The amendments are effective mainly against hostile two-tier tender offers, in which the bidder uses either an explicit two-tier offer, in which consideration for each tier is stated in the initial tender offer, or an implicit two-tier offer, in which the terms of the second-stage merger are not described in the initial offer. Because many experts do not consider the two-tier tender offer an essential tactic for successful hostile takeovers, the modern fair-price s We understand from a February 1985 conversation with Peter Harkins (then with Georgeson & Co.) that the fair-price amendment was actually invented by White & Case in 1973. Hochman and Folger (1979. p. 554) report that the first fair-price provision appeared in the proxy statement dated April 18, 1975 of Chicago Pneumatic Corporation. The overwhelming popularity of this amendment began with the Bendix-Martin Marietta contest, in which Bendix instituted such a provision.

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amendment is widely regarded as the least restrictive (or protective) among the family of supermajority amendments6 2.3. Classified boards Classified-board provisions classify (or stagger) the board into groups (usually three) so that only a fraction of all directors are elected each year. Classification makes it more difficult to change the composition of the board, therefore making it more difficult for any insurgent shareholder or group to gain control of the firm. Classification of the board also reduces the effectiveness of cumulative voting by requiring a greater shareholder vote to elect a single director. Accompanying most classified-board amendments is a lock-in provision, which requires a supermajority shareholder vote to change the number of directors or the classification scheme and mandates that directors may be removed only for cause. 2.4. Authorization of preferred stock

Authorization to issue preferred stock allows the board of directors to establish voting, dividend, conversion, and other rights for preferred stock that the company may issue, sometimes in defense against a hostile takeover bid. Although the historical rationale for this authority is that it gives the board flexibility to finance general corporate activities under changing economic conditions, this device also allows the board to discourage hostile bidders by issuing to friendly parties preferred stock with special voting rights and/or by creating a poison pill security. Poison pill issues are relatively new. OCE (1986) reports that 37 firms had adopted a poison pill defense by the end of 1985, with 27 in 1985 alone. By the first six months of 1986, 192 firms adopted poison pills. This defensive tactic has received great attention because of its complex operation and its believed invincibility. Poison pills are devices through which holders of the company’s common stock are issued rights (without shareholder approva1) to purchase a newly issued class of preferred stock (or other security). These rights, however, are commonly worth little unless one of several triggering events occurs. Also, the rights can be bought up cheaply by the target at the discretion of the board until a triggering event occurs. Triggering events include a tender offer for the firm’s shares or acquisition by an outside party of a sufficiently large block of the company’s stock. After the triggering event occurs the new rights are freely 6Two-tier tender offers were used in 7 of 82 successful tender offers in 1984 [OCE (1985)]. Overall. OCE finds relatively small differences between premiums paid in two-tier tender offers and any-or-all tender offers and no evidence of any coercion over target shareholders with two-tier offers.

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tradable. and they provide the holder with considerable value in the event of a merger. Usually, the rights can then be used to purchase common stock of the newly merged tirm at a substantial discount, or they may allow holders to swap their shares for other, higher-valued debt securities. This defense makes the target prohibitively expensive to take over through a hostile bid. 3. How should antitakeover amendments affect firm value? Both academic experts and industry takeover specialists disagree widely about whether antitakeover amendments are good or bad for shareholders. Proponents of antitakeover amendments argue that these provisions. by giving target managements additional negotiating leverage or veto power, enable these managements to negotiate better deals on average for their shareholders. Opponents claim that these amendments are mainly used to entrench incumbent managements by insulating them from competition in the market for corporate control. They further contend that widespread voting approval of antitakeover amendments is evidence of management’s persuasive ability and shareholders’ complacency. 3.1. Shark repellents benejt shareholders DeAngelo and Rice (1983) present the rationale for the argument that shark repellents benefit shareholders by discussing corporate control as a communal resource. Diffuse and non-cooperating shareholders of the target firm are not capable of negotiating the best price for control of their firm, especially when faced with a bidder using a two-tier tender offer. Under these conditions, target shareholders may fail to hold out for the tender price that would be best for them collectively.’ In response to this potential problem, shareholders of prospective target firms may find it advantageous to adopt amendments that effectively appoint target management as their central negotiating agent, especially when confronted with two-tier tender offers. By this reasoning, antitakeover amendments help to force once-diffuse target shareholders to respond in unison to takeover bids, and thereby gain a larger share of the economic gains from the prospective merger. Often this added leverage allows target management to benefit the firm’s shareholders by inducing competitive bidding between potential acquirers. ’ These expected benefits come with the ‘For a summary of theoretical reasons why bidders use two-tier and partial tender offers. see OCE (1985, esp. pp. 10-14). Also see Bradley (1980). Grossman and Hart (1980). and DeAngelo and Rice (1983). “Jarrell (1985) confirms that in cases where litigation by incumbent management against the bidder results in competing bids. shareholders receive an additional average premium of 17 percentage points during the period of auction. He also reports that for these cases of litigious targets. an auction-style takeover is a much more common outcome than is the defeat of the attempt.

GA. Jarrrll

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risk that target management might in some cases abuse its responsibility by repelling takeover bids that benefit shareholders but harm incumbent management. In addition. some potential acquirers may be discouraged from initiating takeover bids if the cost of control is effectively raised by antitakeover amendments. For shark repellents to be beneficial to shareholders. the potential benefits from empowering management with stronger negotiating power must outweigh the costs imposed by the possibility of management’s acting in its own interests or by the potential deterrence of bids. Powerful mechanisms other than hostile tender offers must align management interests with shareholders’ interests.’ The fair-price amendment is consistent with a positive view of shark repellents. It is designed specifically to appoint target management as the central negotiator only when shareholders are faced with two-tier tender offers. These offers create the most difficult hold-out problems for diffuse shareholders. From this viewpoint, the proposal of an antitakeover amendment should, on average. increase the market value of the adopting firm’s stock. Shareholder adoption of these amendments would be consistent with rational and wellinformed voting. When economic conditions exist that make these amendments valuable to shareholders, their managements will propose them and shareholders will approve them. If the amendments do not increase stock value, management should not propose them; if they do so by mistake or with improper motives, their shareholders should vote them down. Although actual cases will contain exceptions due to incomplete information or mistakes, the prediction is that proposed antitakeover amendments should be accompanied by positive abnormal stock returns on average upon public announcement. 3.2. Shark repellents harm shareholders Arguments asserting that shark repellents harm shareholders emphasize the potential for abuse by target management of its increased veto power over hostile tender offers. Hostile tender offers provide a mechanism to oust incumbent managements when other methods fail to align management interests with those of the shareholders. Because the potential conflict between management and shareholders becomes extraordinary during hostile control contests, it is rarely in shareholders’ interests to allow management to select the offers shareholders may consider. Opponents of antitakeover amendments reconcile their view of such provisi‘ons with the dramatic increase in the popularity of shark repellents among voting shareholders by contending that shareholder voting works badly in ‘Fama (1980) notes the importance of both the external and internal managerial in ensuring that managerial incentives are aligned with shareholder returns.

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practice. Individual shareholders have a relatively small economic stake in any particular firm’s internal affairs. It is generally in their interest, therefore. simply to vote in accordance with management’s recommendations. This shareholder strategy can be rational because it conserves on expenditures to become informed. Relying on management is sensible if it has proven to be a faithful and well-informed agent, and/or if the proposed action is expected to have a trivial effect on shareholder wealth. Antitakeover amendments reduce firm value by reducing the probability of receiving valuable takeover bids. For the typical proposing firm, this probability may not be high at the time of the proposal. Therefore, the maximum effect of deterrence might be only negligible declines in stock price, providing little incentive for low-stake shareholders to become informed. Our research provides some preliminary evidence on the deterrent effect of antitakeover amendments. We cross-match our sample of almost 700 firms with antitakeover amendments (including the DeAngelo and Rice list of 1974-1979 antitakeover amendments) against the OCE (1985) sample of 288 successful tender-offer targets between 1981 and 1984. Only 18 of these targets had proposed, or were about to propose, antitakeover amendments. This evidence suggests that hostile takeovers are very infrequently attempted against firms having antitakeover amendments. A strong conclusion cannot be drawn, however, since the ratio of all successful tender offers in 1981-1984 (228) to all public firms (about 6,000) is also small. Pound (forthcoming) also finds evidence that takeover bids are ‘deterred. He compares a sample of 98 NYSE firms with antitakeover amendments with a control sample of 98 NYSE firms without antitakeover amendments. He finds that 38% of the firms in the control sample were subjects of acquisition bids, whereas only 28% of those in the antitakeover sample received acquisition offers. He finds the difference in these proportions to be significantly different from zero. Institutional investors and other holders of large blocks of shares have better economic incentives to learn the effects on shareholder wealth of antitakeover amendments, especially given the increased frequency with which they are asked to vote on them. Evidence supporting the view of antitakeoveramendment opponents is the general opposition of large institutional shareholders to protective antitakeover amendments. The Investor Responsibility Research Center (1985b) in a recent survey of voting by institutional investors found that 25 of 31 responding banks, insurance companies, investment counselors, and corporate pension funds oppose supermajority proposals increasing the number of shares required to approve mergers and other similar transactions. There is less outright opposition to fair-price proposals, however, with 16 investment managers responding that they are willing to support them and 15 managers stating that they usually oppose them.

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Georgeson & Co. (1985) survey the voting by over 1,700 institutional investors (including all of the top 100) on 61 recent solicitations to adopt fair-price and classified-board amendments. The top 100 institutions voted nearly three-to-one against fair-price amendments and split evenly on classified boards. The other institutions voted three-to-one in favor of both fair-price amendments and classified boards. Larger institutions are more hostile toward both provisions than are smaller institutions. The hypothesis that antitakeover amendments are generally counter to shareholders’ interests predicts that proposal of such amendments will be accompanied on average by negative abnormal stock returns. Shareholder voting behavior that reconciles the prediction of negative stock returns with majority voting approval suggests other testable implications. More harmful amendments should have lower institutional stockholdings than less harmful amendments. Moreover, more harmful amendments should have relatively high insider holdings. Finally, since the costs of learning the true economic effects of various antitakeover amendments should decline with shareholder experience, this theory predicts that harmful kinds of amendments should decline in popularity over time. Only amendments that have. a positive or neutral effect on stock value, op average, should continue to be proposed frequently.

4. Data and methodology

4.1. Data

Our sample of firms proposing antitakeover amendments is derived from several sources. The investment banking firms of Drexel Bumham Lambert [DBL (1984)] and Kidder Peabody [KP (1984)] have both collected extensive samples of antitakeover amendments proposed to shareholders beginning in 1979. The DBL sample ends with December 1983 and reports antitakeover amendments by category, including fair-price, supermajority, classified-board, and authorization-of-preferred-stock provisions. The KP study ends in July 1984 and reports fair-price amendments. Our third source for firms introducing antitakeover amendments is the SEC’s Office of Tender Offers. This sample includes all firms proposing antitakeover amendments between October 1984 and May 1985.” ‘OOverall. we are missing two months from our sample - August and September 1984. In the DBL sample, all amendments have been approved by shareholders. In the KP and SEC samples. all amendments have been proposed but a few were not approved by shareholders or had not yet been voted on at the time of our study.

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Table 1 Number

of antitakeover

amendments

in survey by t)pe of amendment. January 1979 to May 1985.”

for each year in the period

Tvpe of amendment Year

Fair price

1979 1980 1981 1982 1983 1984 1985d

12 10 5 11 161 193 95

All

487

Supermajority 1 23 17 13 22 4’ 24 104

Otherb

Total

0 1 0 2 23 2’ 30

13 34 22 26 206 199 149

58

649

“Sources identifying antitakeover amendments are Drexel Bumham Lambert. Inc.. Shareholder Prorecrwe A mendmenf Analysis, 1984, Kidder. Peabody. Eflects of Adoption of Fair Price Amendmenu on Stock Prices and Imtrurional Ownership, 1984. and SEC. proxy statements. hThe ‘other’ category includes authorization-to-issue-stock and classified-board ‘Our sources do not report non-fair-price amendments from January to October indicated distribution of amendments is not meaningful. d Through May only.

amendments. 1984. Thus, the

Table 1 details the distribution of antitakeover amendments by year and type. Our sample consists of 487 fair-price amendments, 104 supermajority amendments, and 58 authorization-of-stock or classified-board amendments. Fair-price amendments have clearly been the most popular form since 1983. Appendix A reports complete details on the firms in our sample. We review each proxy statement describing the antitakeover amendment and classify the amendments in the various categories used in our study, rather than depending on the classifications determined by the various sources. The most common type of amendment in our study is the fair-price amendment. The second most common type is the supermajority amendment. If the firm proposed a fair-price or supermajority amendment, whether or not it simultaneously proposed a classified board, authorization of preferred securities, or other antitakeover provisions, the proposed amendment is classified as either a fair-price or supermajority amendment. We adopt this classification scheme because of the relatively small number of classified-board and authorizationof-preferred-stock amendments in the sample and because of our particular interest in the two primary types of antitakeover amendments. Firms introducing supermajority amendments are further categorized as having a board-out clause or not. That is, if the board is able to override the supermajority requirement to approve a merger or acquisition, a board-out designation is noted. In the supermajority sample, we have a gap in the period covered. The DBL sample identifying firms introducing supermajority amend-

ments ends with December 1983. The SEC sample. which also identifies supermajority amendments, picks up in October 1984. Thus, we are missing supermajority amendments introduced from January through September 1984. Our two other categories consist of firms that introduced amendments to classify the board or to authorize the issuance of preferred stock and did not introduce either a supermajority or fair-price amendment at the same time. Two firms in the sample introduced both an amendment to classify the board an an amendment to authorize the issuance of preferred stock. These were placed in the authorized-preferred category. Again, the KP sample does not identify firms introducing classified-board or authorization-of-preferred-stock amendments, so we are missing firms that may have introduced these other amendments from January through September 1984. For each firm in our sample, we collect several data items. Insider (officers and directors of the firm) holdings are identified from the proxy statements proposing the antitakeover amendments. Institutional stockholdings are collected from Spectrum 3: 13(F) institutional Stock Holdings Survey, which reports data from Forms 13F filed with the SEC and from other sources. Institutional investment managers, including federaland state-chartered banks, insurance companies, investment companies, and independent investment advisors, exercising discretion over accounts with combined equity assets over $100 million are required to file Forms 13F quarterly with the SEC. Because of the size requirement and the corresponding exclusion of smaller institutional investors, institutional holdings are underestimated in our sample. Stock-price data for the firms in our sample are obtained from the Investment Statistical Listing (ISL) tapes from Interactive Data Services, Inc. From these price data, we compute daily returns to each stock, adjusting for dividends and stock splits. These data have an advantage over the more commonly used Center for Research in Security Prices (CRSP) data because we are able to obtain stock-price data for securities that are traded over the counter or on regional exchanges, whereas CRSP data are limited to securities listed on the New York or American Stock Exchange. Approximately one-third of the firms in our sample are not traded on either of the two major exchanges. In addition, ISL tapes are available on an up-to-date basis. whereas the CRSP tape. at the time of our research, provided data only through the end of 1984. Our sample contains 149 firms that have introduced antitakeover amendments since 1984. The CRSP value-weighted market return was not available for our tests for dates after the end of 1984. Therefore, we use the S&P 500 as a proxy for the market portfolio. To ensure consistency, we use the S&P 500 for all our testing, even when the CRSP market return was available. We compared the regression results under these alternative market proxies for data before the end of 1984 and concluded that this choice makes virtually no difference for our sample.

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Stocks that are traded over the counter but are part of the National Market System report last-trade data, providing information on actual trades, as with exchange-traded firms. Over-the-counter securities that are not part of this system, however, report bids and asks rather than actual prices at which trades occur. For these over-the-counter securities, we use the average of the last reported bid and ask each day to estimate the price at which the security actually traded. Because bid and ask quotations are only necessarily applicable to 100 shares of the security and orders may be transacted anywhere inside the spread (and even outside of it), these estimates may not completely represent actual price changes. The effect of this approximation should be to dampen some of the actual variability in day-to-day price changes. The ISL tapes, which are the source of stock-price data for the CRSP tapes, have not been as extensively reviewed and corrected as the CRSP tapes. ISL does not correct earlier tapes for changes in identification numbers occurring when firms experience changes in name or state or incorporation. Thus, when we attempt to match current identification numbers against the tape, no match is identified for these firms. We lose 62 firms from our sample because of these changes. These firms are listed in appendix B. In addition, in several cases we found it necessary to adjust certain daily returns because of obvious errors in the price data or in cases where a tender offer, leveraged buyout, or other significant information about the firm was disclosed. We make considerable effort to ensure that none of the adjustments substantively affects the measured impact of the proposal of antitakeover amendments on the value of the firm. Appendix C reports all of these adjustments. 4.2. Methodology We use market model methodology to determine the impact of the proposal of antitakeover amendments on security prices. Developed by Fama, Fisher, Jensen and Roll (1969) and used extensively in the finance literature, this popular procedure allows one to correct for overall market influence in returns of securities and to measure abnormal returns in any given period. To estimate the abnormal returns, a control period must be chosen over which to determine the estimated relation between the return to the security and the return to the market. Specifically, the relation is hypothesized to take the following form: R,, = a, + b,R,, + err,

(1)

where R,, is the return on the security of firm i at time t; R,, is the return on a market portfolio (S&P 500) at time t; a, and b; are the parameters of the relation between the return on the individual security and that of the market; e,, is the residual of the relation at time t, assumed to be distributed normally with mean equal to zero, a constant variance over the control and prediction periods and zero correlation between residuals over time; and t is equal to 0

G-l.

Jurrell

und A. B. Poulsen. Shark repellents and stock prices

141

on the event date. - 1 on the trading day before the event. + 1 on the trading day after the event, and so on. Thus, at any given time, the return on the individual security is expressed as a linear function of the return on the market portfolio and a stochastic error term that reflects firm-specific information. To determine estimates of the parameters a, and 6,. the model is estimated using ordinary least squares regression techniques over 150 trading days. starting 170 trading days before the event day. I1 The model assumes that these parameters are constant over the control and prediction periods. Using the estimated parameters, we predict returns for the period over which the antitakeover amendments are announced. These predicted returns should be unbiased estimates of actual returns unless firm-specific information significantly influences returns. Predicted returns are compared with actual returns to determine abnormal returns (AR):

AR,, = R,, - 8, - &R,,.

(2)

Once abnormal returns are determined for the individual firms, cumulative abnormal returns (CAR) for each firm are determined by summing over the days of interest, and then portfolios of the various categories of antitakeover amendments are formed and average cumulative abnormal returns are computed. This methodology results in cross-sectional cumulative abnormal returns rather than time-series cumulative abnormal returns. Brown and Warner (1985, p. 24) detail these procedures. Significance levels of the cumulative abnormal returns are determined with standard t-tests. The variance of the mean cumulative abnormal returns is estimated from the cross-sectional cumulative abnormal returns.

5. Empirical

results

5.1. Stock returns - Overview Table 2 summarizes the mean cumulative abnormal returns that accompany the public release of proxy materials containing the proposed antitakeover amendments. Table 2 reports the results for the longest window we test (days “In the period over which the parameters of the relationship are estimated, wc drleted any observations in which the security was not traded and any observations in which the return to the individual security was greater than 50%. Also. if fewer than 50 observations were left in the estimation period, the firm was deleted from the sample. In the prediction period, we made several additional adjustments. If the security.was not traded on a certain day, we set that day’s return on the security equal to zero. This ts preferable to deleting the observation because this treatment ensures that the market return on the corresponding day is included in determining the cumulative abnormal return. We also set the return equal to zero in instances where we found errors in the price data and where we found large returns attributable to alternative news about the firm. The data were extensively reviewed to find these outliers. We also found it necessary to delete several firms from our sample at this point because of lack of data in the prediction period. Appendix C details these adjustments.

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und A. B. Paulsen, Shurh repellents

und rroch prices

Table 2 Cumulative abnormal returns (CAR) around proxy statement signing date and institutional and insider stockholdings (in percent) for firms proposing antitakeover amendments, by type of amendment, in the period January 1979 to May 1985 (number of observations in parentheses). Type of amendment

Mean Ci( R” ( - 20.10)

Fraction r (mean) Panel A

All (551)

- 1.25%

CARS neg.

:

Non-fair price (143)

Inst. hold.

Ins. hold.

28.6% (540)

13.1% (538)

Entire sample

- 2.21

Panel B: Fair- and non-fawprice

Fair price (408)

f(neg.)’

0.55

amendment

2.36

rubsamples

-0.65

- 1.04

0.54

1.62

29.1 (399)

12.8 (395)

- 2.95

- 2.54

0.57

1.69

25.7 (141)

13.1 (143)

Panel C: Subsamples

of 143 non-fair-price

amendments

Pure supermajority (41)

- 1.31

- 0.63

0.56

0.77

22.6 (41)

16.6 (41)

Supermajority board out (48)

- 4.92

- 2.27

0.56

0.84

16.5 (47)

19.5 (48)

Authorized preferred (26)

- 3.67

- 1.61

0.58

0.83

32.5 (26)

8.7 (‘6)

Classified board (28)

- 1.29

-0.64

0.57

0.75

40.0 (27)

6.6 (28)

“The source for returns data from which the cumulative abnormal returns are calculated is the ISL (Investment Statistical Listing) tapes of Interactive Data Services, Inc.. New York. ‘r(neg) = (p - 0.5)/( pq/n)‘/‘. where p is the fraction of all CARS that are negative. 4 equals 1 - p. and n is the number of observations.

- 20 to + 10) and tables 3 and 4, discussed in the next subsection, provide more detailed information on alternative window specifications. The date on which the proxy is signed is used as the announcement date. In contrast, the studies by Linn and McConnell (1983) and DeAngelo and Rice (1983) both use the proxy mailing date as the announcement date. The signing date is usually the same day as the mailing date but is occasionally the day before. The cumulative abnormal returns are averaged over all cases (panel A of table 2) and for various subsamples (panels B and C). Panel B distinguishes between fair-price and non-fair-price amendments, with the latter group consisting of pure supermajority amendments, supermajority amendments with board-out clauses, authorization-to-issue-preferred-stock amendments,

GA. Jurreil and .4. B. Poulsm.

Shnrk repellents und stock

prices

143

and classified-board amendments. Panel C reports abnormal stock returns for these four individual types of non-fair-price amendments. Column 2 of table 2, headed Mean CAR (-20,10), shows the crosssectional mean cumulative abnormal return. The CAR for each firm is computed over the period from 20 trading days before to 10 days after the proxy signing date. The next column, headed t(meun), presents the ratio of the mean CAR to the cross-sectional standard error of the mean (the r-statistic). The column headed Fraction CARS neg. presents the proportion of the individual cases that have negative abnormal stock returns cumulated over the relevant event window (from - 20 to 10 in table 2). If one assumes that the distribution of this fraction is binomial, then the 55% of CARS (-20,lO) that are negative for the entire sample is significantly dilTerent from 50% at the 95% confidence level [the t-statistic is 2.36, as shown in the column headed t(neg)]. The final two columns show the average institutional and insider stockholdings, respectively, for this sample. Table 2 reports that the average abnormal stock return for the entire sample of 551 antitakeover amendments is -1.25%. This mean CAR(-20,lO) is significantly different from zero at the 95% confidence level. The most interesting result in table 2 is the difference in mean CAR( - 20,lO) between the 408 fair-price cases and the 143 non-fair-price cases. The subsample of fair-price amendments has a mean CAR( - 20,lO) of negative 0.65%, which is statistically insignificant (the r-statistic is - 1.04). Note, however, that 54% of these 408 CARS have a negative sign. Non-fair-price amendments (including 89 supermajority amendments. 26 authorized-preferred and 28 classified-board cases) are associated with a statistically significant negative return of 2.95%. Of these amendments, 57%. report a negative return over the period from 20 days before the proxy to 10 days after. The r-statistic of the difference between the mean CAR( - 20,lO) for the fair-price group and that of the non-fair-price group is 1.82, assuming equal standard errors of the means. The t-statistic of this difference is 1.74, assuming unequal standard errors of the means. In sum, this decomposition shows that the average abnormal return of -1.25% for the entire sample is attributable largely to the non-fair-price amendments. Table 2 (last four rows) also presents CARS for the portfolios of the various kinds of non-fair-price amendments. Although this breakdown results in small samples with larger standard errors, these CARs hint at an interesting pattern. The pure supermajority amendments have an insignificant mean CAR( - 20,lO) of - 1.31%. whereas the portfolio containing supermajority amendments with board-out clauses has a significantly negative mean CAR of 4.92%. This seems counterintuitive, because the pure supermajority amendments are considered to be more restrictive than the repellents containing board-out clauses for target management. Fair-price amendments, which also contain board-out

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G.A. Jarrell and A. B. Paulsen. Shark repellents and stock prices

clauses, have an insignificant effect on abnormal returns. Yet the supermajority amendments with board-out clauses show the most negative stock returns of all of the various portfolios. A partial explanation may be that the supermajority amendments with board-out clauses have higher insider and lower institutional stockholdings. The other two categories, which consist of 26 cases of authorization-ofpreferred-stock and 28 cases of classified-board provisions, show negative but insignificant mean CARL (See the last two rows of table 2.) The authorizationof-preferred-stock cases have a mean CAR( -20,lO) of - 3.67%, and the classified board cases have a mean CAR of - 1.29%. Although these means are non-trivial in size, the standard errors for these small samples are large enough that both means are insignificant at the 95% confidence level. Indeed, it is difficult to gain much statistical information from decomposing the sample into portfolios containing less than forty or fifty cases, given the event window of thirty trading days and the small abnormal stock returns that can be expected to result from announcing antitakeover amendments. We simply conclude from table 2 that (i) fair-price amendments have, on average, less negative (and insignificant) abnormal stock returns than do non-fair-price amendments, and (ii) the supermajority-with-board-out amendments induce the largest negative abnormal stock returns among the four kinds of non-fairprice amendments. 5.2. Stock returns - Additional windows Tables 3 and 4 present similar averages of abnormal stock returns calculated using event windows of varying lengths. Besides repeating CAR( -20, lo), tables 3 and 4 add CAR( - 10, lo), CAR( - 5,1) and CAR( - 1,l). These four windows were chosen to provide an overall picture of the market reaction to antitakeover amendments. Table 3 presents these mean CilRs for the entire sample (all in panel A), and breaks out fair-price (panel B) and non-fair-price (panel C) subsamples, and table 4 reports the similar statistics for the various amendments within the non-fair-price sample. It is interesting to note that in both tables 3 and 4, it is only in the longer event windows that any of the effects of the announcements on stock prices are significantly different from zero. In fact, the shortest event windows of CAR( - 1,l) and CAR( - 5,l) are insignificant, though negative in almost every case. In each panel, the t(mean) increases in absolute value as the event windows lengthen, especially when days ( - 20, - 11) are included. Indeed, the overall sample (panel A of table 3) would be judged to have insignificant stock-price changes if we eliminated days (- 20, - 11) from the event window. The cumulative abnormal returns reported in tables 2, 3. and 4 suggest that the information about antitakeover provisions contained in the proxy statement is anticipated by the market. More than half of the total abnormal

G.A. Jarrell and A. B. Paulsen, Shark repellents and stock prices

145

Table 3 Cumulative abnormal returns (CAR) around proxy signing date for firms passing antitakeover amendments. by type of amendment, for various intervals in the period January 1979 to May 1985. Fraction of Interval CAR(-20.10)

r(mean)

Mean

CARS neg.

Panel A: All anritakeouer amendments - 2.27 - 1.25

f(neg.)

(IV = 551) 0.55

2.34

CAR(-10.10)

- 0.46

- 1.07

0.53

1.41

CAR(-5.1) CAR(-1,l)

-0.24 -0.04

-0.92 - 0.24

0.57 0.56

3.32 2.84

CAR(-20.10)

- 0.65

- 1.04

0.54

CAR(-10.10)

- 0.09

- 0.19

0.51

CAR(-5.1)

-0.16

-0.52

1.62 0.40 2.44 1.21

Panel B: AN fair price (.V = 408)

CAR(-1.1)

0.56

0.15

0.03

0.53

Panel C: Non-fair price ( N = 143) CAR(-20.10) CAR(-10,lO) CAR(-5.1)

- 2.95 - 1.50 - 0.47

- 2.54 - 1.55 -0.90

0.57 0.59 0.57

CAR(-1.1)

- 0.26

-0.74

0.55

1.69 2.19 1.69 1.20

Table 4 Cumulative abnormal returns (CAR) for various intervals around proxy signing date for firms passing non-fair-price antitalceover amendments, by type of amendment, in the period January 1979 to May 1985. Fraction of Interval

t(mean)

Mean

Panel A : Pure supermajor@ CAR(-20.10)

CAR(-10,lO) CAR(-5.1) CAR(-1.1)

CAR s neg.

-0.63

- 1.31

0.10 -0.14 -0.27 Panel B: Supermajoriry

[(neg.)

( N - 41) 0.56

0.77

0.06

0.46

-0.51

- 0.16 - 0.42

0.51 0.56

0.13 0.77

with board-out (N = 48)

CAR(-20,lO)

- 4.92

- 2.27

0.56

0.84

CAR(-10,lO) CAR(-5.1) CAR(-1.1)

- 2.92 - 1.25 - 0.73

- 2.04 - 1.20 - 1.06

0.75 0.60 0.54

4.00 1.41 0.56

Panel C: Authorized

preferredand classified board (N = 54)

CAR(-20.10)

- 2.43

- 1.33

0.57

CAR(-10.10)

- 1.45

-0.92

0.54

CAR(-5,l)

- 0.04

- 0.05

0.57

0.18

0.37

0.56

CAR(-1.1)

1.01 0.59 1.01 0.86

146

CA. Jurrellund A. B. Poulsen. Shark repellents und stock pm~s

returns for the entire sample are measured over the ‘anticipatory’ period ( - 20. - 11). Table 5 reports the mean CARS and the fraction of daily abnormal returns that are negative for each day from day - 20 to day + 10 for the fair-price (panel A) and non-fair-price (panel B) samples. This detailed information illustrates more dramatically the possible anticipation of antitakeover amendment proposals. From day - 20 to day -11, negative daily abnormal returns outnumber positive daily abnormal returns on 9 out of 10 days in the fair-price sample and 8 out of 10 days in the non-fair-price sample. In the non-fair-price sample, cumulative abnormal returns are significantly different from zero as early as 16 days before the proxy signing date. These early negative returns motivate a closer study of the events that precede the proxy signing date and the abnormal returns over this earlier period. Although the proxy signing date is considered to be the first public information that a firm is proposing an antitakeover amendment, many private actions are taken in the months preceding this date in preparation for the shareholder referendum. Briefly. the antitakeover provisions are originally devised by firm management, usually in consultation with outside investment advisors, well before the board of directors meets to consider whether to propose them. Sometimes the firm’s management engages proxy solicitation experts to study the prospects for voting approval by shareholders. This is done before the board meets and is not expected to release significant amounts of information to the market. ‘* In fact, SEC regulations prohibit anyone from soliciting favorable votes from shareholders before the proxy materials are send out.13 After the proxy signing, firm officials and proxy solicitors often make considerable efforts to persuade shareholders to vote favorably. Therefore. we expect any resulting changes in stock prices to occur immediately around the proxy signing date. Linn and McConnell (1983, p. 385) report that, for their large sample of 1960-1980 antitakeover amendments, an average of 27 trading days separates the board meeting dates from the proxy mailing dates (the median interval is 24 trading days), and an average of 24 trading days separates the proxy mailing dates from the shareholder voting dates (the median is 24 trading days). Although it is against SEC rules actively to solicit votes before the proxy mailing date, the decision by the board may be leaked to some market participants, especially as the proxy mailing date nears. The evidence presented here shows that about half of the changes in stock price measured “Proxy solicitors sometimes call institutional holders to confirm details about their shareholdings and voting authority. This communication can tip off these sophisticated investors, since such questioning is done mostly in connection with proposed antitakeover amendments. ‘31ndustry experts note that inexperienced firm officials sometimes reveal this information to some of their institutional holders before the proxy is mailed when attempting to arrange meetings for formal solicitations, to be held after the mailings. This is not expected to be common occurrence.

147

G.A. Jurrell und A. B. Poulsm. Shark repellenrs und stock prices Table 5

Cumulative abnormal returns (CAR) and fraction negative daily abnormal returns (AR) around proxy statement signing date for firms proposmg fair-price and non-fair-price amendments. in the period January 1979 to May 1985. Panel A: Fair-pnce amendments

( ,v = 108) Event day

- 20 -19 - 18 - 17 - 16 -15 - 14 - 13 - 12 -11 - 10 -9 -8 -7 -6 -5 -4 -3

3 4 5 6 7 8 9 10

Mean CA R

Fracnon ARs neg. 0.54 0.54

Panel B: Non-fmr-price amendments (N= lJ_?) Mean CA R

Fraction ARs neg. 0.50 0.5Yb

0.57b 0.48 0.53 0.5gh 0.W 0.54 0.54 0.W 0.51 0.5-t 0.50 0.56 0.5jb 0.5gb 0.5gb 0.55’ 0.54 0.53

-0.11 - 0.47 - 0.60 - 0.68 - 1.12” - 1.30” - 1.42= - 1.25s - 1.299 - 1.45” - 1.29 - 1.24 - 1.12 - 1.64’ - 1.77” - 1.67= - 1.72” - 1.87= - 1.98= - 1.90”

0.48 0.54 0.61’ 0.56 0.58 0.47 0.57 0.57 0.52 0.53 0.50 0.5gb 0.56 0.52 0.57 0.55 0.61b 0.52

-0.86

0.51

- 1.87”

0.54

-0.81 -0.86 -0.73 -0.64 - 0.45 - 0.42 -0.36 - 0.51 - 0.59 - 0.65

0.51 0.5-t 0.50 0.50 0.51 0.52 0.50 0.45jb 0.5jb 0.52

- 2.24” - 2.52” - 2.50” - 2.55” - 2.65” - 2.78= - 2.81” -3.00a - 2.50” - 2.95”

0.58 0.57 0.57 0.51 0.54 0.52 0.51 0.55 0.49 0.64b

-0.10 -0.12 -0.17 -0.12 -0.00 - 0.05 -0.20 -0.39 - 0.45 -0.56 - 0.62 - 0.58 - 0.60 - 0.46 - 0.65 -0.73 -0.70 - 0.75 - 0.84 - 0.86

a Mean CAR is significantly different from zero at the 95% confidence level. hFraction of negative ARs is significantly different from 50% at the 95% confidence

level.

between ( - 20,lO) occur in the interval ( - 20, - 1 l), which ends two weeks before the proxy mailing date. Also. Linn and McConnell report evidence of significant positive average abnormal stock returns over the 90 trading days before the board meeting date. (They also measure significant positive stock performance over the interval between the proxy mailing date and the shareholder meeting date.) In light of this evidence, it is plausible that for our

148

G.A. Jurrell und A. EL Poulsm.

Shark

reprllenrs undsro~lr prtces

sample some related information leaks out even earlier than twenty trading days before the proxy signing date. To test this conjecture. we measure the abnormal returns in the interval (- 40, - 21). This period roughly surrounds the board meeting date. We find that in every case (except in the subset of supermajority amendments with board-out provisions) the CARS from (-40, - 21) are insignificantly different from zero. However, negative daily abnormal returns outnumber positive daily abnormal returns almost every day in this period for every type of amendment. This evidence suggests that market participants may have some information about the forthcoming proxy even sooner than three to four weeks before the proxy signing date. 5.3. Institutionul and insider holdings Table 6 (second and third columns) presents institutional and insider stockholdings averaged by type of antitakeover amendment. These figures include all cases, even those deleted from the computations of stock returns because of insufficient data. For the entire sample, the average stockholdings by institutions are 27.6% of total outstanding common. This figure can be compared with rough approximations of institutional holdings for a hypothetical control group. According to the Spectrum survey, average institutional shareholdings for all publicly registered firms are 35.9% of shares outstanding as of December 31, 1984. Therefore, the typical firm in our sample is characterized by below-average institutional stockholdings. Note that about one-third of our sample of firms are non-exchange firms (column 4 of table 6). Average institutional stockholdings for the exchange firms in our sample (33.1%) are much higher than for non-exchange firms (19.0%). The Spectrum survey covers all public firms in which institutional shareholders have a position, however, and it is unlikely that our sample contains a disproportionately high representation of non-exchange firms compared with the Spectrum data. Our comparison of insider holdings between firms proposing antitakeover amendments and a hypothetical control group must be even more rough, since there is even less information available on average insider stockholdings. What data are available, however, suggest that our sample’s average insider holdings of 13.6% is probably comparable to a hypothetical control. Bradley and Kim (1985) compile insider holdings for 192 merger targets and 112 tender-offer targets between 1969 and 1980. The average stockholdings of insiders around the time of the transactions is 15.9% which is close to the average 13.6% for our sample. The more interesting results come from disaggregating the sample by type of antitakeover amendment. Comparing the fair-price cases with all supermajority cases (the second and third rows of table 6) shows that average institutional stockholdings are much higher (28.8 % versus 19.2%) and average insider

GA. Jarrell

und A. B. Pot&en.

Shark repellents

and stock prices

149

Table 6 Institutional and insider stockholdings (in percent) for firms proposing antitakeover amendments, by type of amendment, in the period January 1979 to May 1985. (The number of observations is given in parentheses beneath the percentages of institutional and insider stock ownership. The total number of observations, in each case, is larger in this table than in tables 3 and 4 because firms for which stock price information was lacking were deleted from those tables.)

Institutional holdings’

Insider holdingsb

Fraction of sample listed on NY SE or ASE

All

21.6 (599)

13.6 (624)

0.67

Fair price

28.8 (441)

13.0 (461)

0.66

All supermajority

19.2 (103)

18.4 (106)

0.68

Pure supermajority

22.4 (46)

16.3 (47)

0.74

Supermajority board out

16.6 (57)

20.1 (59)

0.63

Authorized preferred

31.7 (27)

11.8 (28)

0.73

Classified board

36.9

7.7 (29)

0.75

(28)

‘The sources for institutional stockholdings are Computer Directions Advisors, Inc., Specwum 3: I3( F) Institutionul Stock Holdings Survey, 1979-1984, and Drexel Burnham Lambert, Inc., Shureholder Protective Amendment Analysis, 1984. bThe source for insider stockholdings is the proxy statements that propose the original amendment

to shareholders.

holdings are much lower (13.0% versus 18.4%) for the fair-price cases. Both of these differences are significant, with t-statistics of 5.10 and 3.22, respectively. These differences cannot be attributed to different fractions of exchange firms in these two subsamples (see column 4). This result suggests that institutional stockholders and non-insider stockholders are more hostile to supermajority amendments. To pass more restrictive super-majority amendments, it is apparently advantageous for the proposing firm to have relatively low stockholdings by institutions and high stockholdings by insiders.14 A somewhat puzzling finding emerges from decomposing all supermajority cases into pure supermajority amendments and supermajority amendments with board-out clauses (see the fourth and fifth rows of table 6). The pure supermajority cases have higher average institutional stockholdings (22.4% I4 We also computed average institutional proposal to check for evidence of a secular institutional and low insider stockholdings in which does not have a comprehensive sample

and insider stockholdings for subsamples by year of trend. We found fair-price amendments have high relation to other cases for each year (excluding 1984, of non-fair-price amendments).

150

G.A. Jnrrell and A B. Poulsen,

ShurX repellents and stod prices

versus 16.6%) and lower average insider stockholdings (16.3% versus 20.1%) than do the less restrictive supermajority amendments with board-out clauses. though the differences are not significant. The differences may simply reflect the higher fraction of exchange-listed firms among the pure supermajority cases. rather than reveal anything about different voting attitudes toward these amendments. (Among the pure supermajority firms, 74% are exchange-listed, as opposed to 63% of the firms with board-out provisions.) Authorization-of-preferred-stock and classified-board amendments (the last two rows of table 6) have higher average institutional stockholdings and lower average insider stockholdings than do supermajority or fair-price amendments. This is consistent with the higher representation of exchange firms for these two types of amendments (column 3). Also, it is consistent with the genera1 belief that institutional investors are less hostile to classified-board and authorized-preferred proposals than to supermajority voting requirements (including fair-price amendments). With the recent increase in the number of firms adopting poison pills, however, it would not be surprising if institutions became more hostile to amendments authorizing the board to issue preferred stock. These data on institutional and insider holdings are especially interesting when considered in light of the relative effects of the different categories of antitakeover amendments. Remember we find that fair-price amendments, on average, have an insignificant impact (-0.65%) on share returns, whereas supermajority amendments, with and without board-out clauses, report returns of -4.92% and - 1.31% respectively. The differences in the distribution of institutional and insider holdings may help to explain how the supermajority amendments received shareholder approval, despite their more negative effects on stock prices. In general, there were fewer sophisticated. institutional shareholders voting on these super-majority amendments and more insiders who would benefit from the amendments’ protection. These data suggest that managers must consider the characteristics of their shareholders when proposing antitakeover amendments. It could be argued that management should take actions having negligible stock-price effects in firms with a high proportion of insider holdings. These insiders have the most to lose in terms of stock value. These same insiders, however, would lose their positions if the company were taken over. Insiders may be willing to absorb a loss in wealth when the result is a further concentration of their control over the corporation. We use regression analysis to test the importance of institutional and insider holdings in determining the type of antitakeover amendment chosen by the firm and the level of cumulative abnormal returns. Table 7 reports our results from logit and ordinary least squares regressions. In the logit model (panel A, regression l), the dependent variable equals one if the firms chose a fair-price amendment and zero if it chose one of the non-fair-price amendments. The results indicate that the higher the firm’s institutional holdings. the higher is

Table 7

2

3

Regression

Rcgrca&)n

“Significantly

1

Regression

diKerent

Model ch-squared statibtic = 4.64 ..____ -._. _______~..

- 0.0042 (0.27)

0.70

from zero al ltle 90X conlidencc Icvcl.

~_~~___~

0.02Y ( - 0.91)

~ 0.024 ( - 0.77)

Institutional holdings

0.047 O.YY) Modct R’ = O.WY

(

Modct R’ = 0.002

- 0.04’) (-1.03)

Insider holdings (f-slalislic in parentheses)

2.47 (l.Y4)”

I~i~nw~y = 1 if fair price, 0 olherwise

I’UIW~ B: Ordimrryv irusr .yrurr.s rrgwssio~~ - tlcpcv~tltw cwrd~lr = CA R( - _‘O, + IO)

0.0099 (2.98)”

- 1.70

O.OOhX

Ebtimaled coethcienrr from logit (panel A) and ordinary leas1 squares (panel 11) regressions relating choice of amendment ~ypc’ and cumulative abnormal returns (CAR) around proxy signing date to institutional and insider holdings, in ~hc period January IY7Y rhrough May IYX5 (number of observa&~ns = 52X).

152

CA. Jarreil undA. B. Poulsen. Shark repellents und stock pmes

the probability it will select a fair-price amendment. The coefficient on institutional holdings is significantly different from zero at the 90% confidence level. The higher the firm’s insider holdings, the lower is the probability it will select a fair-price amendment, though this coefficient is insignificantly different from zero. The results from the ordinary least squares regressions (panel B) are much weaker. Institutional and insider holdings are unable significantly to explain the relative level of cumulative abnormal returns. For these regressions, the dependent variable is CAR( - 20, + 10). We test several specifications of the model, entering institutional and insider holdings of the firm at their absolute value and at their log value. We also consider whether institutional and insider holdings vary in their effect between firms introducing fair-price amendments and those introducing non-fair-price amendments. In no case are the coefficients on institutional or insider holdings significantly different from zero at the 95% confidence level, and the signs of the coefficients are-unstable with respect to the specification. No regression specification is able to explain more than 1% of the variation in CAR( - 20, + 10). Regressions 2 and 3 in table 7 report results from the two simplest specifications. Regression 2 tests CAR( - 20, + 10) as a function of institutional and insider holdings, and regression 3 adds a dummy variable equal to one if the firm introduced a fair-price amendment and to zero if the firm introduced a different type. The only significant variable in these two regressions is the dummy variable. Given the large error in the dependent variable, the lack of explanatory power of the models is not surprising. 5.4. Comparing

exchange

with non-exchange

firms

The results presented so far combine exchange and non-exchange firms. These data contain some evidence suggesting this distinction may be important. Specifically, the cumulative abnormal returns tend to be more negative for cases having higher insider holdings and lower institutional holdings. This regularity may simply reflect where these firms are listed, since nonexchange (smaller) firms typically have higher insider holdings and lower institutional holdings than exchange (larger) firms. Table 8 presents mean CAR( -20, lo), institutional holdings, and insider holdings for different kinds of antitakeover amendments broken down by exchange and non-exchange cases. Panels A and B of table 8 show that for every type of amendment the exchange firms have higher institutional holdings (33.2% vs. 19.1% for all) and lower insider holdings (11.0% vs. 17.5% for all) than do the non-exchange firms. The CAR comparisons show that, in general, the exchange firms have less negative abnormal stock returns than do the non-exchange firms. The overall mean CAR( -20,lO) for the 372 exchange firms is - 1.01% and insignificant at the 95% confidence level (t-statistic is - 1.63). The 179 non-exchange firms show an insignificant mean CAR( - 20,lO)

G.A Jarrell

and A. B. Poulsen, Shark repellents

153

and sock prices

Table 8 Cumulative abnormal returns (CAR) around proxy statement signing date and institutional and insider stockholdings (in percent) for firms proposing antitakeover amendments, by type of listing. in the period January 1979 to May 1985 (number of observations in parentheses). Type of amendment

Mean CAR ( - 20,lO)

Fraction f(mean)

CAR s neg.

[(neg.)

Inst. hold.

Ins. hold.

Panel A: E.whange firm All (372)

- 1.01

-1.63

0.53

1.16

33.2 (366)

11.0 (363)

Fair price (273)

-0.53

- 0.77

0.53

0.99

34.4 (267)

10.7 (264)

Non-fair price (99)

- 2.33

- 1.75

0.53

0.60

29.8 (99)

11.9 (99)

Pure supermajority (28)

- 1.26

-0.45

0.50

0.00

24.1 (28)

15.8 (28)

Supermajority board out (30)

- 2.73

- 0.89

0.50

0.00

18.2 (30)

16.9 (30)

Authorized preferred (20)

- 2.06

- 1.07

0.60

0.91

36.5 (20)

7.1 (20)

Classified board (21)

- 3.47

0.65

47.6 (21)

4.2 (21)

- 1.71

Panel B: Non-exchunge

0.57

firms

All (179)

- 1.75

- 1.58

0.59

2.45

19.1 (174)

17.5 (175)

Fair price (135)

- 0.90

- 0.71

0.57

1.64

20.0 (132)

16.9 (131)

Non-fair price (44)

-4.33

- 1.87

0.64

1.93

16.1 (42)

19.2 (44)

Pure supermajority (13)

-1.44

-0.53

0.69

1.48

19.3 (13)

18.2 (13)

Supermajority board out (18)

- 8.56

- 3.27

0.67

1.53

13.7 (17)

23.8 (18)

Authorized preferred (6)

- 9.04

- 0.71

0.50

0.00

18.9 (6)

13.9 (6)

Classified board (7)

- 5.24

13.2 (6)

13.5 (7)

- 1.10

0.57

0.37

154

G..4. Jurrell und .A.B. Poulsm. Shurk repeilen~s und sioc!i prms

of - 1.75%. These mean CARS are not significantly different from each other, however. Roughly the same result holds within the fair-price and non-fair-price subsamples. For the fair-price subsamples, the non-exchange firms’ mean CAR of -0.90% is almost double the exchange firms’ mean CAR of -0.53%. (Both of these mean CARS are insignificantly different from zero.) For the non-fairprice subsample, the exchange firms show a mean CAR of -2.33% compared with the -4.33% for the non-exchange firms. Also note that 64% of the CA& ( - 20,lO) for these 44 cases of non-exchange, non-fair-price amendments are negative, compared with only 53% for the exchange firms. In sum, the typical fair-price amendment for an exchange-listed or nonexchange firm has no perceptible effect on its stock price. The typical nonnegative effect for both fair-price amendment, however, has a significant exchange and non-exchange firms. The exchange-listed firm experiences about a 2% decline in stock price and the non-exchange firm experiences a stock price decline of over 4%. The latter result can be attributed largely to the supermajority-with-board-out amendments. which have very high insider stockholdings (averaging 24%).

6. Conclusion This paper examines the effects on shareholder wealth of antitakeover amendments (shark repellents) proposed betwen 1979 and 1985. We focus on the cumulative abnormal returns to proposing firms in the thirty trading days around their proxy signing dates. The 649 cases in the study have been classified into several subsamples - fair-price, pure-supermajority, supermajorauthorization-of-preferred-stock. and classified-board ity-with-board-out, amendments. Fair-price amendments account for 75% of the 649 cases, the two categories of supermajority amendments 16%. and the other two categories 9%. The time trends clearly demonstrate that the wave of antitakeover amendments passed after the 1982 proxy season reflects primarily the passage of new fair-price amendments. The debate about shark repellents centers on whether they help or harm shareholder interests. By providing target management with veto power over certain kinds of takeover offers, these provisions should reduce the probability that target shareholders will receive valuable takeover bids. If this deterrrent effect predominates. then shareholders should vote against these amendments. On the other hand, target management could use these new powers to negotiate better terms for target shareholders in actual control contests. If this premium effect predominates, then shareholders should approve these amendments. The cumulative abnormal return averaged over the entire sample is - 1.25%, with a r-statistic of - 2.27. This lends significant statistical support to the

G.A. Jurrell und A. B. Pouism, Shark repellents and stock prtces

155

theory that these amendments harm target shareholders by deterring valuable takeover bids. But this general conclusion is excessively broad. The popular fair-price amendment has an insignificant average cumulative abnormal return of -0.65%. The non-fair-price amendments, which include the two categories of supermajority, authorization-of-preferred-stock, and classified-board amendments, show a negative and statistically significant average abnormal return of 3.0%. A recurring pattern in these data is an inverse relationship between negative stock returns and insider holdings and a positive relationship between cumulative abnormal returns and institutional holdings. These data suggest that those amendments that are most harmful to shareholder interests are more easily approved if insiders have a relatively large voice in the decision and institutional investors have a relatively small role. Logit regression analysis supports this pattern, finding that fair-price amendments are most likely to be adopted the higher are institutional holdings and the lower are insider holdings. An important development in antitakeover amendments is that shark repellents having the most harmful effects on stock price are outnumbered substantially today by the less restrictive fair-price amendment. This tends to vindicate to some degree the view that shareholder voting is fairly effective in monitoring self-interested behavior by management. The economics of rational shareholder voting can tolerate a certain amount of time for learning, as shareholders gain experience about how shark repellents actually affect the market for corporate control. The theory would predict that amendments revealed to be harmful would be dominated by less restrictive amendments that, at the least, are not as harmful. This weeding-out process should work better where institutional stockholders have large investments. Insiders, on the other hand. can rationally support amendments that decrease the value of their stockholdings if the added protection provides sufficiently greater on-the-job benefits. These on-the-job benefits must outweigh the greater costs incurred by insiders with large shareholdings in the form of the decrease in share value. Our results on the impact of shark repellents do not indicate that shareholder voting has failed in its role as a monitor of self-interested behavior by management. The types of shark repellents with the most negative effects on stock prices become less popular over time in our sample. On the other hand, the stock returns data presented here do not indicate conclusive evidence that fair-price amendments benefit target shareholders or that they should approve them. Their average effect is negative (albeit insignificant), whereas the shareholder welfare theory predicts positive returns. The ultimate resolution of the role of shark repellents in the battle for corporate control will come with experience. Future research should be done to determine how fair-price amendments and the increasingly popular poison pill defense actually affect takeovers.

C.A. Jurrell and A. B. Paulsen, Shark repellents and slack prices

Appendix A Table 9 Firms in sample introducing antitakeover amendments, with cusip, proxy signing date, institutional holdings (inst. hold.) in percent, insider holding (ins. hold.) in percent. source identifying amendment and type of amendment. Proxy Company

name

AAR CORP ACCURAY CORP AEC INC AEROFLEX LABS INC AFTER 6 INC AIR PRODS 81 CHEMS INC AIRBORNE FGHT CORP ALABAMA GAS CORP ALASKA INTST CO ALBERTSONS INC ALLEGHENY LUDLUM STL CORP ALLIED TEL CO ALLIS CHALMERS MFG CO ALPHA INDS INC ALUMINUM CO AMER AMBANC CORP AMEDCO INC AMERIBANC INC AMERICAN CARRIERS INC AMERICAN CYANAMID CO AMERICAN RLTY & PETE CORP AaMERICAN STERILIZER CO AMERICAN UNDERWRITERS GROU A,MERICAN WELL SERVICING CO AMERIWEST FINANCIAL CORP AMSTED INDS INC ANCHOR HOCKING GLASS CORP ANDERSON CLAYTON &CO ANDERSON GREENWOOD & CO ANHEUSER BUSCH COS INC ANR COMPANY ANTHEM ELECTRS INC ARDEN GROUP INC ARGO PETE CORP ARKANSAS BEST CORP ARKANSAS BEST CORP ARKANSAS LA GAS CO ARMEL. INC ARROW AUTOMOTIVE INDS INC ARVIN INDS INC ASSOCIATED HOSTS INC ASSOCIATED HOSTS INC ASSOClATED SPRING CORP ASTROCOM CORPORATION ATLANTA BANCORPORATION ATLANTA GAS LIGHT COMPANY ATLANTIC RESEARCH CORP AVCO CORP BMC INDUSTRIES INC BACHE & CO INC BAKER OIL TOOLS INC BAKER. FENTRESS AND COMPANY BALL CORP BALLYS PK PL INC BANCROFT CONV FD INC BANGOR PUNTA ALEGRE SUGAR CORP BANK BLDG & EQUIPMENT CORP A.MER BANK SOUTH CORPORATION BANKNORTH GROUP BARD CR INC BARNETT BANKS FLA INC BARRY RG CORP

Cuip 361 4396 LO15 7770 8315 9158 9266 10727 293582 13104 17372 19555 19645 20753 22249 990234 23433 23618 25043 25321 32159 30087 30341 30903 32177 33047 33609 33849 35229 1814 36732 39762 40138 40789 40789 41237 42198 42727 43339 45654 45654 67806 46390 48222 47753 48816 53501 55607 56357 57264 57213 58498 58735 59695 60221 60815 65068 664.57 67383 68055 68797

Inst.

Ins.

dale

hold.

hold.

Source’

Typpeb

830916 840323 850225 801027 831109 82 1209 840309 840611 830413 850412 840327 830902 830422 830722 850327 850318 830429 850403 840413 850307 820805 83033 1 850402 840418 840302 841123 79033 1 830920 840417 850321 840307 840518 800512 810413 800418 840410 830405 840521 831031 830321 840105 850115 830307 840410 840305 841221 840322 830316 830315 791010 821217 840213 850311 830429 800527 790213 810108 830408 850412 850313 850228 840330

58 34 5 2.6 0.0 14.6 67.0 52.2 13.2 14.9 31.2 32.2 0.0 58.0 5YO 60.7 _c

17.9 7.9 44.s 21.3 29.5 1.0 16 7 1.3 15.0 20.6 4.9 6.2 8.0 34 1.0 8.4 28.9 21.4 0.5 1.2 19.8 2.0 29.6 49.3 3.2 10 5.6 35.2 33.2 14.6 -

D K SEC D D D K K

SMB FP FP SM SMB CB FP FP FP FP FP FP CB FP CB FP FP FP FP FP S.MB FP AP FP FP FP FP FP FP FP FP FP SMB SMB S.M FP FP FP FP CB FP SMB FP FP FP FP FP FP FP FP FP FP FP AP SM FP SM FP FP FP FP FP

10.1 17.7 21.7 62.6 10 6 21.0 _ _ 59.8 _ 20.8 125 56.2 55.7 4.4 3.7 42 28 5 45.0 62.7 24.5 40.0 4.1 5.4 42.0 25 2 190 49.0 43.0 43.6 0.0 48.0 lb.8 14.9 0.0 2.5 15.1 29.4 48.7 444 10.5

5.8 0.8 25 9 45.1 23.3 1.7 40.9 65.0 2.8 59.0 53 0 21.7 15.9 24.1 1.0 14.0 1.5 9.3 8.3 2.0 14.8 6.3 0.4 0.9 23.2 9.8 9.7 16.1 2.2 1.5 24 9

D. K SEC K D D D. K SEC SEC K SEC K SEC D D. K SEC K K SEC K D. K K SEC K K D D D K D. K K D. K D K SEC D. K K K SEC K D. K D. K K D. K K SEC D D K D K SEC SEC SEC K

GA. Jarrell

and A.B. Paulsen, Shark repellents

157

and stock pricer

Table 9 (continued)

Cwp BARRY WRIGHT CORP BASE TEN SYSTEMS INC BEARINGS INC BEATRICE FOODS CO BECTON DICKINSON & CO BEEFSTWK CHARLIES INC BELO AH CORP BEMIS INC BENEFICIAL CORP BERG ENTERPRISES INC BEVERLY ENTERPRISES BIBB COMPANY BINKS MFG CO BLACK & DECKER .MFG CO BLISS & LAUGHLIN INC BLOCK H & R INC BLUEFIELD SUPPLY CO BOHEMIA INC BORDEN CO BOWNE & CO INC BRISTOL MYERS CO BROOKLYN UN GAS CO BRUNSWICK CORP BURLINGTON INDS INC BURLINGTON INDS INC BURLINGTON NORTHN INC BURNDY CORP BURROUGHS CORP BUSINESSMEN‘S ASSURANCE CIGNA CORP CABOT CORP CALLON PETROLEUM CALUWET INDUSTRIES [NC CAMELOT INDUSTRIES CARESSA INC CARLISLE CORP CARROLS DEV CORP CASTLE & COOKE INC CRT CORP CENTERRE BANCORPORATION CENTURY TEL ENTERPRISES INC CHAMPION RESERVE CORP CHAMPION SPARK PLUG CO CHARTER CORP CHARTER MED CORP CHECKPOINT SYSTEMS CHEM LAWN CORP CHESAPEAKE CORP VA CHICAGO & NORTH WESTN TRANSN CHICAGO BRDG & IRON CO CHIEFTAIN DEV LTD CINCINNATI FINANCIAL CORP CITIZENS & SOUTHERN GEORGIA CORP CITY NATIONAL CORP CLAIRE‘S STORES CLOW CORPORATION CNB BANCSHARES COASTAL STS GAS PRODUCING CO COBE LABS INC COLEMAN INC COLONIAL GAS COMPANY COLORADO NAT’L BANKSHARES. INC COMBUSTION ENGR INC COMERICA COMMERCE BANCSHARES COMMODORE BUSINESS MACHS LTD COMMONWEALTH FED’L SAV‘GS BANK

6RRR7 69779 74005 74077 758X7 77017 80555 RI437 RI721 R3730 87151 81665 90527 91797 54595 93671 96167 97329 99599 103043 110097 114259 117043 121bYl 121691 121x97 122205 122781 123277 125509 127055 131238 131429 133225 141735 142339 145744 148429 l24R50 152007 156686 158636 158663 lb1336 161241 162825 163530 lb5159 167166 124x00 168664 172062 173124 1795R4 1 X9468 126126 190441 190893 193558 195674 196538 200273 200340 200525 202660 -

Proxy

In,1

Ins.

date

hold.

hold

x30304

33 0 45 53 7 42.x 31.4 39 24.2 22.4 36 5 3.0 60 0 149 9.5 57 0 80 70.x 70 13.8 42.4 21.6 52 0 13 1 50.9 51.7 42 2 47.7 47.6 63 3 31.4 6X.3 55 4 23 12.5 0.0 26 7 25.0 0.0 31.7 4.1 170 79 _

X.0 31 6 15.9 10 30 30 8 lb.2 13.4 6.6 32.7 4.1 14.8 30 0 1.6 5.3 14.4 27 24.1 0.3 x.5 16 10 16 0.4 0 4 02 72 09 -

80102x 83outY wo430 850103 830X23 X40326 x30407 x30321 n21211 850325 830624 x40409 1121227 R30325 830726 X30318 830X0X 840305 840127 x40320 x50102 850311 R21223 841220 x50315 R50322 840224 X40406 850311 R4122X x40504 791221 820303 830916 840320 xc0929 830912 850315 R40308 x50325 X50416 R40330 x40403 801222 850313 R30316 X30325 830331 830316 850315 830301 830304 Xl0313 840524 840330 841228 820412 830330 830411 840329 840312 830318 840307 8303 IS 841016 830707

64.3 16 4 20.4 24.6 26.4 39.6 25 0 29.4 3.4 13.0 20.9 6.0 13.6 21.4 24.9 25.3 34.0 1.0 21.9 32.9 31.2 17.4 17.3 0.0

04 17.3 23.5 21.9 1.0 21.7 114 43.0 2.7 6.3 2.2 17.4 52.0 13 5 150 45.6 10.7 32.3 21.1 9.2 13.1 10.0 22.2 3.7 30.5 24.7 12.4 6.5 8.1 25.6 36.9 3.5 8.0 1.2 I2 9.0 20.1 -

D. K D D. K K SEC D K K K D SEC D. K K D D. K D. K D. K K K K K SEC SEC D. K SEC SEC SEC K K SEC SEC K D K D. K K D K SEC K SEC SEC K K D SEC D D. K D. K D. K SEC D. K D. K D K K SEC K D D K K D K D. K SEC K

FP 541 FP FP FP SMB FP FP FP CB AP FP FP SM FP FP FP FP FP FP FP FP CB FP AP FP FP FP FP FP FP FP SMB FP FP FP SM FP SM FP FP SM FP FP SM FP SMB FP FP FP AP FP FP SMB FP FP FP FP :z FP FP CB FP FP SMB FP

158

GA Jarrrll

and A. B. Poulsen. Shark repellents

und stock pnm

Table 9 (continued)

COMPREHENSIVE DESIGNERS INC COMPUDYNE CORP COMPUTER COSSOLES [NC COMTECH GROUP INTL LTD CONE MLS CORP CONIFER GROUP ISC CONNECTICUT ENERGY CORP CONSOLIDATED DIESEL ELEC CORP CONSOLIDATED FREIGHTWAYS INC CONSOLIDATED SAT GAS CO CONSOLIDATED TOMOKA LAND CO CONSUMERS W4TER CONTINENTAL COPPER & STL INDS COOPER TIRE & RUBR CO CORNING GLASS WKS CORROON REYSOLDS CORP COUNTY TOWER CORP CREDO PETROLEUM CORPORATION CROWELL COLLIER PUBG CO CROWN ZELLERBACH CORP CULLINANE DATABASE SYS INC D.H. HOLMES COMPANY LIMITED DAMON ENGR ISC DAMSON OIL CORP DANIEL WOODHMD DANKER LABS ISC DART & KRAFT ISC DASH INDUSTRIES DATA GEN CORP DAY MINES INC DAYTON HUDSON CORP DCB CORP DE LUXE CHECK PRISTERS INC DECISION DATA COMPUTER DELTAK CORPORATION DI GIORGIO FRUIT CORP DIAMOND ALKALI CO DIAMOND BATHURST (NC DIAMOND NATL CORP DINNER BELL FOODS INC DOMINION BASKSHARES DORCHESTER (3.4s CORP DORSEY CORP DOVER CORP DREYER‘S GRAND ICE CREAM INC DUCOMMUN ISC DYNASCAN CORP EAGLE PICHER CO EATON CORP ECKERD DRUGS FLA INC ECONOMICS LAB INC ED0 CORP EDUCATIONAL COMPUTER CORP ELCOR CHEM CORP ELECTRO CATHETER CORP ELECTRO-BIOLOGY. INC EMERY AIR FGHT CORP EMERY AIR FGHT CORP EMPIRE DIST ELECT CO ENERGY EXCHANGE CORP ENERGY METHODS CORPORATION ENNIS BUSINESS FOR.MS INC ENVIROTECH CORP EQUITABLE GAS CO EOUITY OIL COMPANY EVANS & SUTHERLAND EX CELL 0 CORP

125071 204795 205003 205286 206813 201567 206741 209237 2096 15 210226 210723 125005 216831 219327 220291 222588 225439 554790 228669 230032 436416 235717 235766 979438 236210 237410 237528 237688 239541 239753 992326 248019 243442 247834 252435 252741 252563 252669 254448 257183 258198 258435 26ooO3 261878 264147 268075 269803 278048 278764 279029 281347 281424 284443 285069 285060 291101 291101 291641 292666 292909 293389 294098 294497 294749 299096 300587

830824 810227 830419 R31026 830322 800324 840324 791102 8503113 840409 850405 8204001 821019 850322 850306 830330 821124 840302 830318 830331 820726 840427 841116 830222 850111 800211 830325 840426 R41217 800411 850424 850325 850402 840319 840126 830423 850410 850415 790322 830921 850226 831115 850315 830317 850426 840327 830405 850215 830325 831013 831004 830318 831026 820922 850215 840418 830331 840326 840323 840507 840220 830523 800624 831118 830401 840503 830228

63 00 37 I 16.3 25 7 I.9 2.9 91 71 7 23.6 81.9 34 9.1 51.1 60 5 29 4 51 0.7 50.2 37.5 3x.9 14.6 43 1 1.6 23.2 0.0 55 0 15 7 76 1 79 56.5 _ 444 13 3 25.2 11.5 32.1 24.7 4.0 24.1 17.5 3Y.9 446 37.9 45.1 26.3 36.1 46.5 54.0 51.7 21.4 15.3 18.9 9.1 34.6 56.7 57.2 6.3 x.9 _ 14.3 15.1 29.2 11.4 25.1 39.2

_

78 66 OS 216 19 0.2 05 43 59 -7 ,:.i 11.1 12.S 17 I 140 _ 160 14.0 34 12.6 x7 32.4 08 12.5 12 10 23 6 0.4 90 42 12.9 06 35 46 21.’ 3.4 58 2.9 11.6 1.4 19.0 28 7 2.9 1.3 9.0 2.8 6.2 11.4 29.6 23.1 10 1 21 1.8 0.9 2.Y 27.1 15.6 2.9 10 15.3 11.8 2.7

D D D. K D. K D D K K SEC K SEC K D SEC SEC D. K D. K K D. K D. K D K SEC D. K SEC D D. K K SEC D SEC SEC SEC K K D. K SEC SEC K D SEC K SEC D. K SEC K K SEC D D. K D. K D. K D. K K SEC K D K K K K D. K D D. K D. K K D

FP SM FP FP SM CB FP FP CB FP FP FP SMB FP FP SMB FP FP FP FP SM FP AP SMB FP SMB FP FP FP SMB FP FP FP FP FP FP SM AP FP CB FP FP FP FP FP FP FP FP SM FP FP FP FP FP AP FP AP FP FP FP FP ::LB FP FP FP CB

GA. Jurrell und A.B. Paulsen.

Shark repellents and stock

prtces

159

Table 9 (continue Proxy Company

name

FMC CORP FABRI CTRS AMER INC FACET ENTERPRISES INC FAIRCHILD STRATOS CORP FAIRFIELD COMMUNITIES INC FARR CO FAYS DRUG INC FEDERAL MOGUL BOWER BEARINGS FEDERAL MOGUL BOWER BEARINGS FEDERAL RLTY INVT TR FIGGIE INTERNATIONAL FILMTEC CORP FIRST AMERICAN CORP FIRST ATLANTA CORP FIRST BANKERS CORP FLORIDA FIRST FEDERAL S&L OF AUSTIN FIRST GLEN BANCORP FIRST HAWAIIAN INC FIRST MICHIGAN BANK CORP FIRST NATIONAL CINCINNATI CORP FIRST OHIO BANCSHARES FIRST SAVINGS ASSOC WISCONSIN FIRST SECURITY CORP FIRST WESTN FINL CORP FIRST WESTN FINL CORP FIRSTIER INC FISCHBACH & MOORE INC FLE.MING INC FLORIDA ROCK INDS INC FLORIDA WESTCOAST BANK INC FLUOROCARBON FONAR CORP FOREMOST DAIRIES INC FORUM GROUP. INC FOSTER WHEELER CORP FOSTER WHEELER CORP FOURTH FINANCIAL CORP FOX STANLEY PHOTO PRODS INC FOXBORO CO FREEPORT MCMORAN INC FREMONT GENERAL CORP FSB BANCORPORATION FUQUA INDUSTRIES INC GAB BANCORP GALAXY CARPET MLS INC GENERAL DATACOMM INDS INC GF CORP GENERAL RESH CORP GENERAL SHALE PRODUCTS CORP GENESCO INC GENISCO TECHNOLOGY INC GENTEX CORPORATION GEORESOURCES INC GERBER PRODS CO GERIATRIC 8~ MEDICAL CENTERS. INC GIANT PORTLAND CEM CO GLEASON WKS GLOBAL MARINE INC GODDARD INDUSTRIES GOLDEN NUGGET INC GOLDEN WEST FINL CORP GOULD INVS TR GOULD INC GRACO INC GREAT NORTHN PAPER CO GREAT WESTN FINL CORP GREYHOUND CORP

cwp 302491 302x46 303032 303711 30423 1 31164X 313035 31354Y 313549 313747 31682x 317293 99319x 318626 3192x4 320373 320506 320859 335562 3351150 336900 336294 337531 337531 6x1697 337659 339130 341140 343251 343X6R 344437 5X1556 349x41 350211 350244 351070 3515x6 351604 356714 3572xX 361028 993622 363171 3694x7 361614 343465 370x20 371532 372298 371901 372476 373712 373748 374532 377352 379352 380262 381136 381317 3x3494 383492 384109 391090 391442 398028

datr X3031X 840504 850104 830321 840604 850401 850412 R0@lll 850329 810417 790414 850110 850325 840319 830330 830936 850228 850131 850304 830309 R50327 x3031x x50315 830417 79032x x50416 X31229 850320 x30902 A50417 X30506 X41220 84061X 840615 830318 K00321 850308 830719 x30321 x30307 850405 X50306 850405 850401 840109 840104 830411 X00926 840430 831007 840117 x30404 X50327 840620 830923 x40410 840329 850327 R40213 R40510 840314 80012X 850323 x40330 840322 830316 830401

b-l>1 hold

50 5

30 3 23 3 30 d 33 0 14 xx 22 3 443 1x 10.1 25 7 200 26.x 13 4 _ 1x5 10 3 117 47 3 140 32 5 17 _

In,. hold 1.0 36 8 10 6 20 174 21 4 26.6 2.4 29 37 xx 31 x xx 134 5.0 _ 73 54 JO 55 9x _

2x.5 29.9 3x 1X 7 7.1 159 224 3n 0.4 43.x 00 14 8 47 149 _

80 46 56 LY 1 2.3 6x 45 2 25.3 310 56 7 14 19Y 33 39 21.0 16 2 23 4 44 2x 0 36.4 117 26 9 22 9 24.3 4x 9 6.3 IX4 60 11.0 6X.x 13 5 9.9 34.9 26.3 209 1.6 -

173 50.9 0.0 52.7 67 7 64.9 5X.X 32.5

17.5 21.2 34 5 OX 6.0 1.7 1.2 10

19.4 37 0 37 3 13 x _ JO 43 36 3 49 19 3 _ x4 32.0 40 7 24.9 43 1 _ 34 1 _

1

D K SEC D. K K SEC SEC K SEC D K SEC SEC K K K SEC SEC SEC D. K SEC K SEC D. K K SEC K SEC D SEC D. K SEC K K D. K K SEC K D. K K SEC SEC SEC SEC K K D D. K K D. K K D. K SEC K K K K SEC K K K D SEC K K D D. K

CB FP CB FP FP FP SMB FP AP SM FP CB FP FP FP FP FP CR SMB FP FP FP FP FP FP FP FP FP SM FP FP FP FP FP FP FP FP FP FP FP SMB FP AP FP FP FP SMB FP FP FP FP FP FP FP FP FP FP CB FP FP FP SM FP FP FP CB FP

G.A.

JurreNand

A. B. Poulsen. Shark repellents

and stock prices

Table 9 (continued)

cwp C;RUMMAK AIRCRAFT ENGR CORP GUILFORD .MILLS INC GULF Sr WESTN INDS INC H.B. FULLER CO HANOVER FINANCIAL CORP HARKEN OIL&GAS INC HARPER & ROW PUBLISHERS DEL HART SCHAFFNER & MARX HARTFORD NATIONAL CORPORATION HARTFORD STE4M BOILER INSPECTION HAVERTY FURNITURE CO HBO Sr CO HEALTH MOR INC HECKS INC HECLA ,MNG CO HEIGHTS FINANCE CORP HEILEMAN G BREWING INC HEINZ HJ CO HEIZER CORP HELENE CURTIS INDS INC HERITAGE COMMUNICATIONS INC HERMAN MILLER HESS OIL & CHEM CORP HESS OIL & CHEM CORP HEXCEL CORP HI SHWR CORP HILTON HOTELS CORP HOLIDAY INNS AMER INC HOMESTAKE MNG CO HON INDUSTRIES HORIZON RESEARCH HOWELL ELEC MTRS CO HUBCO INC HUFFMAN ,MFG CO HUGHES TOOL CO HYBRIDOMA SCIENCES INC HY DROMATlCS INC IDEAL TOY CORP. ILLINOIS TOOL WKS INC INDIANA GAS INC INDUSTRIAL BANCORP INEXCO OIL CO INFOR.MATICS GEN CORP INLAND STL CO INSTRON CORP INTERFACE SYSTEMS 1NC INTERNATIONAL MOBILE MACHINES INTERNATIONAL PAPER CO INTERNATIONAL SILVER CO J.L. CLARK MANUFACTURING JAMESBURY CORP JAMESWAY CORP JOSEPH DIXON CRUCIBLE CO JOY MFG CO KDI CORP K-TRON INTERNATIONAL INC . KANSAS NEB NAT GAS INC KELLWOOD CO KELLY SERVICES IFC KERR MCGEE CORP KEWAUNEE SCIENTIFIC EQUIP CORP KEYSTONE INTL INC KNAPE & VOGT MANUFACTURING KNIC;HT NEWSPAPERS INC KOPPERS INC KUHLMAS CORP LACLEDE GAS CO

4nQlXl 4017Y4 402064 359694 412552 41337x 417111) 416655 4167&l 4195Y6 4041(x) 42’1Yl 4226R6 422704 422821 422484 123074 432080 423236 427214 600544 23551 23551 42R29O 42X3Y9 43x+48 4350x1 437614 43XOY2 440443 123645 404382 444356 444492 44X605 576X2Y 451650 45230% 45475X 33R’H)2 456623 JShhbX 457470 45-776 ASH667 460026 460146 45’65Y 18146X 47044X 470736 255696 481196 482452 4x2730 4Y1620 48Ro44 488152 492386 492854 493503 498782 499cdo 500602 501206 505588

pror:<

In,1

In,

ddle

hold.

hold

34 1 27 x 15 3 _ -

22 35 5 6.2 12.7 I94 L? 7 70 44 31 _

8503 14 X3 1028 841026 79+305 R504c4 XI0519 x40713 830228 x40321 830427 x50325 85032R &uwn9 x50401 830326 830407 830323 R30XOX X3092 1 840509 X3041 1 R30X?O 830407 RSO32R X30316 800820 850405 850322 wO403 S3OVIl 84032: R303?5 !I41 120 X20914 x3031x 950401 RSl~llO x00507 X40321 83 1207 X30310 X4c4I3 850325 x50322 x10403 450301 840427 R50305 830304 R30301 821020 R405OR 790313 x31212 X403 19 85OJO2 850222 R30701 810403 x5032:’ x30729 w?dll 1150307 x50315 8403 16 R50320 x31217

24 200 52.5 31x 62 3 1x 4 45 6 27 6 32.7 110 0.0 I x.9 55.7 5x 7 16.7 94 ti6 40.0 47 x 2X.Y 4.u b4.7 53 0 26.3 IX.5 1.0 36.9 _ 13 9 32.9 00 35 6 36 55 9 11.3 1’0 122 3’9 62.9 37 10 0 04 50 4 32 6 I90 6.0 2x R _ 42.3 8.3 02 39 6 47 I 25 3 45 3 29 173 31 7 39 3 47.5 59 IO 6

1x 9 15 Y 12.6 1.5 10 23 R 34 12 5 II 1 _ 15.1 90 17.4 175 4.8 40 8 32.4 06 LO 26 0 zz 9 185 140 16 7 06 IRY 136 29 0 4Y 05 2x 16 2 49 10 33 3 IX0 34 5 06 06 2.0 30 4 20.3 2.7 _ 15.6 4Y 2 2’ 40 64.2 37 13 7 27 2 20 5 35 I 15 118 -

SO”EP

SEC D. K SEC K SEC D K D. K K K SEC SEC K SEC D. K D. K D. K D. K D K K K D. K SEC D. K D SEC SEC K D. K K D. K SEC D. K D. K SEC SEC D K K D. K K SEC SEC D SEC K SEC D. K K K K K K K SEC SEC K D SEC K K SEC SEC K SEC D. K

T> p@ FP FP FP FP FP SMB FP FP FP FP FP FP FP SM FP FP FP FP FP FP FP FP FP SM FP SMB FP FP FP FP FP FP FP FP FP AP FP S.M FP FP FP FP 4P SMB CB FP FP FP FP FP FP FP FP FP FP FP FP ShlB FP FP FP FP FP FP AP FP

GA

Jarrell

and A. B. Poulsen. Shurk repellents

161

and stock prms

Table 9 (continued)

cwp LACLEDE STEEL CO LANCASTER COLONY CORP LANCE [NC LANDMARK FINANCIAL GROUP INC LARSEN COMPANY LASER PRECISION CORP LEAR SIEGLER INC LEASEWAY TRANSN CORP LEGGETT & PLAl-T INC LEHIGH VALLEY INDS INC LEISURE TECHNOLOGY CORP LIBERTY CORP SC LIBERTY FEDERAL SAVINGS Sr LOAN LIBERTY UNITED BANCORP LILLY ELI &CO LINCOLN NATL CORP IND LINCOLN TELECOMMUNICATIONS CO LONE STAR CEM CORP LONGS DRUG STORES INC LOUISIANA GAS SVC CO LOUISIANA LD & EXPL CO LOUISIANA PAC CORP LUBRIZOL CORP LUNDY ELECTRS & SYS INC LURIA L&SON INC LYNCH COMMUNICATIONS SYS INC MADISON GAS & ELECTRIC CO MAGIC CHEF INC MAGNA GROUP INC MAGNETIC CONTROLS COMPANY MALONE c%c HYDE INC MANGEL STORES CORP MARINE CORP MARRIOTT CORP MARSH 91 MC LENNAN INC MARTIN .MARIETTA CORP MARTIN MARIETTA CORP .MASCO CORP MAYFLOWER CORP IND MAYTAG CO MC DONALDS CORP MC DONNELL AIRCRAFT CORP MC C;RAW HILL PUBG INC MCFARLAND ENERGY INC MCI COMMUNICATIONS MEAD CORP MEASUREX CORP MEDALIST INDS INC MEDTRONIC INC MERCANTILE BANCORPORATION INC MERCANTILE STORES INC MERCK &CO INC &MEREDITH CORP MESA PETE CO METHODE ELECTRONICS INC MGF OIL MICHIGAN NATIONAL CORP MICHIGAN SEAMLESS TUBE CO MID-CONTINENT TELEPHONE MILTON ROY CO .MINNEAPOLIS HONEYWELL REGULATOR MINNETONKA INC MISSOURI PUB SVC CO MOBILE COMMUNIC CORP OF AMERICA MODINE MANUFACTURING COMPANY MORAN ENERGY INC

505606 513847 514606 517300 51w.m 521894 522066 524660 525030 525Yl4 530370 _ 531536 532457 534187 5347X0 542290 543162 54625X 54626X 546347 549271 550374 550484 551120 5574Y7 55910X 559214 55Y44X 561280 7X2309 5611236 571630 57174X 57327s 573275 5-45YY 57x339 578592 580135 580169 580645 580432 552673 582X34 583432 584020 585055 587342 5R7533 589331 589433 59%55 5Yl520 552x13 594563 747620 5953’)o 602108 438506 604161 606249 607243 607828 616457

Pro\?

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In,

date

hold

hold

47 23 5 31 1 -

08 42.8 19 1 16.6 15 5 18.7 40 12.4 17 3 0.0 27 4 21.4 -

810222 831026 850328 850403 830X0X 83wo2 840924 830401 840328 830502 831017 8504&l 840319 85030X 850304 850402 850325 840409 840425 x30107 850326 830317 850318 840409 841106 820331 x30321 R30909 85032Y 840228 831014 850321 820324 840410 850412 R30321 850321 81042X 840323 840315 _ 840320 850313 840410 Xl0605 85031X 850227 830318 830718 850318 830418 850315 830610 821110 820825 831028 830318 840228 830316 8404lY 850307 810316 840312 840424 830610 810331

61 9.4 49.9 4R 7 24 5 2.9 39 1 31.0 54 64 3 4x.2 17.0 46 8 24.2 5.0 51 1 32.8 57 2 93 19 4 83 79 47 9 25 7 33 4 45 3 IX.7 38.5 56.6 130 51 7 S1.Y 30 1 32.7 61 1 30 Y 52.4 157 23 0 52.9 64.5 14 66 8 28.1 21 6 57 Y 51.3 41.8 22.9 20 0 8.9 23.6 17.0 23 8 70 9 1.9 96 00 43.1

16.1 OS 1.0 19.3 4.0 26.5 Y.8 2.0 57 1.2 4.3 26 2 3.1 06 54 6.8 25 1 15.1 11.1 38 15 9 25 38.9 15 15 1 87 OR 16.7 60 32.4 47 45 16 2 13 3 4.3 74 413 1.0 37.0 71 25 0 3.7 91 3.2 42 105 02 12.6 5.6 24 3 5.6 17.1

D D SEC SEC D. K D SEC D. K K D D. K SEC K SEC SEC SEC SEC K K K SEC D. K SEC K SEC D D K SEC K D SEC K K SEC D. K SEC K K K SEC K SEC K D. K SEC SEC D D. K SEC D. K SEC D. K D D D D K D. K K SEC D K K K D

S.M SMB FP SMB FP SMB FP FP FP SMB FP FP FP FP SMB FP SM FP FP FP AP FP FP FP SMB SM CB FP SMB FP FP FP FP FP AP FP SM FP FP FP AP FP FP FP FP SM AP SM FP S,MB FP FP FP FP SMB AP SMB FP FP FP FP SMB FP FP FP SMB

162

G..A. Jarrell

und .A. B. Poulsen. Shark repel/ems und stock prices

Table 9 (conrmued)

MORRISON INC .MORRISON KNUDSES INC iMORSE SHOE INC MORTGAGE GROWTH INVS MOSINEE PAPER COMPANY MOUNTAIN FUEL SUPPLY CO MULTNOMAH KENNEL CLUB aMURPHY GC & CO MYLAN LABORATORIES NALCO CHEM CO NANTUCKET INDS [SC NAPCO INDS INC NAPLES FED SVGS & LN ASSN FLA NAPLES FED SVGS & LN ASSN FLA NATIONAL COMMERCE BANCORP NATIONAL CONVENIENCE STORES NATIONAL ENVIROSMESTAL CONTROLS NATIONAL FUEL GAS CO NJ NATIONAL LEAD CO NATIONAL PATENT DEV CORP NATIONAL SYS CORP NETWORK SYSTEMS CORPORATIOS NEW BRUNSWICK SCIENTIFIC NEW HAMPSHIRE BALL BEARISG NEW HAMPSHIRE SAVINGS BASK NEW JERSEY NATIONAL CORP NOBLE AFFILIATES ISC NORDSON CORPORATION NORSTAN INC NORTEK INC NORTH ATLANTIC ISDUSTRIES NORTHEAST SAVINGS. F A. NORTHERN NAT GAS CO NORTHROP CORP NORTHWEST NATURAL GAS CO.UP.ASY NORTHWESTERN PUBLIC SERVICE CO NORTON CO NUG
61X431 61X44X 61YO75 61Y103 6 146tH 62402Y 625744 626643 62X530 629X53 6301X3 630395 6213724 62X724 63544Y 635570 635830 636180 62Y156 637130 635771 641217 642X76 644596 644670 645865 654XY4 655663 656535 65655’) 657305 460575 6662307 667655 668231 66X605 67051X 677240 677m2 6X2678 6X0223 6XO2Y3 680665 682063 682505 690207 6Lx)730 690768 6YO76R 692066 692515 693320 694529 693602 696429 698337 69RJ62 699113 703347 704371 70R160 708720 709352 709631

X10X31 X40306 x31101 X10507 840319 R304l.u 840427 X40425 x4Os14 x403 1Y 840702 X30414 X01216 x40103 x304w x311n7 x40206 x50104 X30321 X50430 x3O42s R40402 83Cd2R 830908 840312 R50311 8403 16 840127 8407OY 840330 840615 x4c61x X40227 850328 X40409 8503 I8 x40315 x20x1 1 840406 83031.X X30302 x40210 x3c425 830425 X50319 830’326 X311@4 Rco402 X30329 830304 850306 830428 790416 830711 810105 810410 791029 800916 830316 840328 800826 850228 850412 850503 831116 810316

63 41 5 47 4 56.5 Y.8 35.1 -

20 4 X6 _

I4 4 15 71 3 12.3 219 20 4 -

48 22 4 1.3 31.4 25.Y 69 _

5:.: 10 72 30 Y 102 445 52.0 20.1 62.9 _ 7.5 34 0 146 3.7 9.6 10.4 Y.Y 52.0 33 2 143 66 48 X 07 3Y.7 16.4 31.2 46.2 3.0 60.1 28.1 25.7 23.Y 12.6 50.6 50.7 5.4 3.4 47.1 34 5 41.4 29.4 15.8 45.2 50.7 55 45 7 49.2 6.3 2.3 i0.5

1.X 8.X 0.5 -

33 6 10.3 21.4 1.4 1.0 1.2 12.4 X6 27.0 12.0 4.5 1.9 34.6 3x.1 12.9 15.6 22 8 1.2 73 0.6 IO 2.8 37.1 1x.3 12.2 43 1 20 Y.9 1.3 4.R 36.7 154 10.5 21 6 1.3 1.0 13 7 23.5 1.3 _ 179 23.1 18.2 1.8 2.8 13.7 1.8 1.0 3.6 26.4 11.5

D K D. K D K D K K K K K D D K K K K SEC D.K SEC K K K D. K K SEC K K K K K K K SEC K SEC K D K D. K D. K K K D. K SEC K K D. K D D SEC K K D D. K D K D. K D. K K D SEC SEC SEC D. K D

SMB FP FP SMB FP S>lB FP FP FP FP FP SMB SM FP FP FP FP FP FP AP FP FP FP FP FP FP FP FP FP FP FP FP FP FP FP FP FP SMB FP FP FP FP FP FP CB FP FP FP S>I CB 541 FP FP CB FP FP FP FP FP FP SMB FP FP FP FP FP

163

GA. Jurrell and A. B. Poulsen. Shark repellents and stock prices Table 9 (continued) PKlp

PEOPLES BANKING CORPORaTION PERINI CORP PERRY DRUG STORES INC PETROLANE GAS SVC INC PETROLITE CORP PETTIBONE PHILADELPHIA SUBN CORP PHtLLIPS PETE CO PIEDMONT AVIATION INC PIONEER HI BRED INTERN.ATIO:IAL INC PIONEER NAT GAS CO PITNEY BOWES INC PITTSBURGH PLATE GLASS CO PLASMA-THERM INC POCONO HOTEL CORP PO00 PRODUCING CO PONCE FEDERAL BANK PORTA SYS CORP POTLATCH FORESTS INC PRAIRIE PRODUCING CO PRATT & LAMBERT INC PRECISION CASTPARTS CORP PRIM0 INC PRODUCTION OPERATORS CORP PROTECTIVE CORPORATION PUBLIC SERVICE CO OF N CAROLINA PUOET SOUND PWR & LT CO PURDUE NATIONAL CORP QUAKER CHEMICAL CORP QUAKER OATS CO QUAKER ST OIL REFNG CORP OUIXOTE CORP RALSTON PURINA CO RA.MTEK CORP RANGER OIL CDA LTD RANSBURCI CORP RAYMOND INTL INC NJ RAYTHEON CO RCA READING & BATES OFFSHORE DRILL RELTRON CORPORATION REUTER. INC REVLON INC REXHA,M CORP REYNOLDS & REYNOLDS CO RITE AID CORP RIT-TER INC ROBERTSON HH CO ROHR CORP ROLLINS ENVIRONMENTAL SVCS INC ROLLINS LEASING CORP RONSON CORP ROSPATCH CORP RYDER SYS INC SAFEWAY STORES INC SANTA BARBARA BANCORP SCAN-OPTICS. INC SCHERER RP CORP SCHERING CORP SCHULMAN A INC SCIENTIFIC INDUSTRIES SCREW & BOLT CORP AMER SE-c0 INC SEAWAY FOOD TOWN INC SECOND NATIONAL CORP SECURITY MTG INVS NEW

In.\1

Ins.

CU,iP

d;ltr

hold

hold

Sourer’

T>prb

651OR4 713x39 714611 71654-J 716723 716769 71xcw 718507 720101 723686 723645 724479 693506 727%X1 7304m 73044x -

R30823 R3c412 830208 840110 840203 840620 XlMlJ 840309 800317 811217 R30325 840321 830307 850314 850415 830321 840419 R10428 840320 x40406 850409 830531 850214 850118 830415 840330 840323 850320 830328 831003 790822 841228 831206 R41130 840315 850311 830331 850419 840305 R30331 840109 840403 850326 830321 800111 830525 850311 840404 841008 841228 841228 831007 85c403 840326 8OwO7 850306 840419 820630 85031 I 831111 841115 X40322 800508 820104 850322 850129

10 15 2 V3 31 V 18.3 VI 33.1 46 0 Y9 37 5 29 0 5’) Y 50 8 499 _

75 317 42.4 2.5 1.0 22 6 ?R 0.2 74 23 4 3.6 10 10 517 13.6 41 -

K D D D. K K K D K D D D. K K D. K SEC SEC K K D K K SEC K SEC SEC D. K K K SEC D. K D K SEC K SEC K SEC D. K SEC K K K K SEC D. K D D SEC K SEC SEC SEC D. K SEC K D SEC K D SEC D SEC K K D SEC SEC

FP AP SMB FP FP FP SMB FP SM SM FP FP FP FP FP FP FP Sbf FP FP S>lB FP AP FP FP FP FP FP FP SM FP FP FP FP FP FP FP FP FP FP FP FP SM FP SMB FP FP FP FP SMB SMB FP FP FP SMB FP FP SMB FP FP FP FP FP SMB FP FP

735647 737624 739659 739732 740189 741624 743080 743668 744516 745332 746166 747316 747402 747419 749056 751277 751874 752805 753228 754721 755111 749282 7552X1 759529 761321 761525 761686 761695 767754 871140 770553 775422 775709 749901 776338 778204 783549 78651A 801233 805894 806527 806605 8081% 808757 32037 811704 812744 813599 814131

33 9 I1 5 33.6 23 2 130 41 9 14.0 22.7 57 9 51 13 1 23 3 45 2 13.7 16 1 44.3 32.9 35.6 35 0 16 9 53.2 510 29 1 11.5 54 3 37.1 188 56 2 44.9 20.7 65.9 25.8 34.5 3.9 4.5 814 30 6 19.0 23.9 55.4 26 4 26.4 24.9 6.3 1.2 22.6

31.5 13s 37 2 16 2 30.3 20.8 14.3 10 9 2.1 V6 11.8 19.6 35 4.7 21.4 6.9 10 7 2.5 31 3.8 13 10 4.0 39 4 Y.3 2.8 51 53 3 10.7 2.7 1.2 2.1 194 25 9 87 9.9 18 10 20.0 4.5 108 06 199 25 6 32.7 30.6 32.5 11.8 14.9

164

GA. Jarrell and A. B. Pouisen, Shark repellenrr und stock prrca Table 9 (continued)

SECURITY NEW YORK STATE CORP SELIGMAS & LATZ INC SEMICON INC SERVICE MERCHANDISE INC SERVOTRONICS INC SHERBURNE CORP SHERWIN WILLIAMS CO SHONEY’S INC SHONEY‘S SOUTH INC SHOPSMITH. INC SIMPLICITY PATTERN INC SMITH INDS INTL INC SNAP ON TOOLS CORP SOCIETY CORPORATION SOCONY MOBIL Oil INC SOURCE CAP INC SOUTH JERSEY GAS CO SOUTH PENN OIL CO SOUTHEASTERN SAVINGS & LOAN CO SOUTHERN BANCORPORATION SONAT SOVEREIGN CORP SPERRY RAND CORP SPERTI DRUG PRODUCTS INC SQUIBB BEECH NUT INC ST JOSEPH LT & PWR CO STANADYNE INC STANDARD MTR PRODS INC STANDARD OIL CO IND STANLEY WKS STANELY WKS STATEWIDE BANCORP STAUFFER CHEM CO STERLING DRUG INC STONE & WEBSTER INC STOP & SHOP INC SUN OIL CO SUPER FOOD SVCS INC SUPER MARKETS DISTRS SYSTE.MS ENGR & MFG CORP TECHAMERICA GROUP INC TECHNICAL OPERATIONS INC TECH SYM CORP TELEX CORP TENNESSEE GAS TRANSMISSION C TENNEY ENGR INC TERRYDALE REALTY TRUST TEXACO INC TEXAS EASTN TRANSMISSJON COR TEXTRON INC THE HOME DEPOT THE PROGRESSIVE CORPORATION THE SUMMIT BANCORPORATION THE WEBB COMPANY THOMAS NELSON THOMPSON J WALTER CO TIME INC TI,MEPLEX INC TIMKEN ROLLER BEARING CO TODD SHIPYARDS CORP TORO CO TRANS LUX CORP TRANSCO COS INC TRUS JOIST CORPORATION TWIN CITY BARGE INC UNIFI

814797 Xl6323 816629 x17sx7 x17732 x23534 x2434x X2503Y X2504l 8250% 82XX79 x32110 x33034 X33663 607059 X36144 8385IX 709903 x4 I 4(X) X4223Y X3541 5 X46037 84X355 848374 x52245 790654 X52X64 853666 85371x) X54616 454616 85765K X67721 X59264 X61572 862OY7 866762 X678X4 78.1527 X72GO2 878315 X782X9 X7X308 879573 nno370 880625 XR16Y4 X823X7 RR3203 437076 743316 86600X 947415 640376 466272 887224 887350 887389 RX%339 R910Y2 893247 893532 898240 901419 904677

830304 K30318 830430 R3032.J X406 13 x4101x 830314 x50225 X50426 X30627 830420 x30331 x4032x 440515 841231 sol(w)7 x303 LO 850312 85050l x40321 X30326 x30412 X3062.4 850307 x40330 x40410 wl3OY 810420 8503 13 830314 x4030x x403 12 R3031X 850314 830325 85041X RJ0403 830216 x30x11 X50108 X40516 820107 R30326 84060X 850325 840402 801217 840416 840309 840319 840501 840316 840306 850320 840622 831021 801010 850301 830615 831104 R‘ul330 830328 840402 830330 83OYl3

13 1 112 17 ‘0 1 _ _ 42 5 26 4 76 5x 1, 4 43 9 I6 4 35 6 IO 70 4: 6

_ 55 Y 7.3 23.5 44 35 3 44 3 42 6 XL) 60 9 58 2 Y6 53 7 41 2 71 60 _ 95 7x 24 0 25.5 JO.8 67 IO 29.4 4x4 37.4 39 2 28.1 14.3 27.1 15.X 0.0 55 4 23.6 45.0 23 9 41.7 5.4 309 36 0 22.5 46.X

110 13 7 26 4 16 8 II 1 36 2 19 33 x 30 2 37 0 3x 7 36 29 32 04 I 0 09 36 Ill 9 15 3 10 64 IO 2.9 2.0 0.7 1.0 15.7 10 1I 10 153 04 06 44 13 6 36 x3 13 2 10 2 25 9 13 7 _ _ 10 21.6 26.5 1.0 LO 1.0 25.8 23.1 130 11.2 28.2 _ 4.3 26 3 21.9 74 8.3 21.0 26 34.6 34.3 R4

D K K D K SEC K SEC SEC K D D K ii SEC D D. K SEC SEC K D. K D. K D SEC K K K D SEC D K K D. K SEC D. K SEC E D K SEC K D K K SEC K D K K K K K K SEC K D D D SEC K D. K K D. K K D K

CB FP FP AP FP FP FP SMB FP FP AP CB FP FP FP SM FP CB FP FP FP FP CB CB FP FP FP SM SXI CB FP FP FP FP FP FP FP S>fB FP FP FP S>lB FP FP FP FP SM FP FP FP FP FP FP FP FP FP FP FP SM FP FP FP FP FP FP FP

G.A. Jarrell and A. B. Poulsen. Shark repellents and stock prrces

165

Table 9 (continucid) Cur1p UNION BANCORP INC UNlON CORP UNtON METAL MANUFACTURING CO UNION PAC CORP UNITED AIRCRAFT CORP UNITED MED CORP UNITED STS BANCORP UNITED STS FGHT CO UNITED STS FGHT CO UNiTED STS INDS INC UNITED STS SHOE CORP UNITED STS SHOE CORP UNITED STS TOB CO UNITED STS TRUST CORP UNITED TELEVISION INC UNITED UTILS INC UNITED WATER RESOURCES INC UNITEL VtDEO INC UNOCAL US AIR USCi CORP UTAH BANCORPORATION VWR UTD CORP VALLEY RES INC VAN DORN CO VELO-BIND INCORPORATED VERMONT AMERN CORP VIACOM INTL INC VULCAN MATLS CO WALGREEN CO WARDS INC WARNER BROS CO WASHINGTON ENERGY COMPANY WASHINGTON NATL CORP WASHINGTON REAL EST INVT TR WAUSAU PAPER MILLS COMPANY WAVETEK CORP WD-40 COMPANY WEATHERFORD INTL INC WEST INC WEST VA PULP & PAPER CO WESTCHESTER FINANCIAL SERVICES CO WESTCOAST TRANSMISSION LTD WESTERN CO NORTH A.MER WHEELING STL CORP WHITNEY HOLDtNG CORPORATION WILLCOX & GIBBS INC WiNDMERE CORPORATION WINDSOR INDUSTRIES INC WITCO CHEM INC WOMETCO ENTERPRISES INC WYOMlNti BANCORPORATION YELLOW FREIGHT SYSTE,M ZAYRE CORP ZERO MFG CO

904853 906072 907056 907815 913017 910X4-l 911596 R94015 894015 912078 912605 912605 912775 912883 913066 913025 913253 915289 911905 903293 917331 913353 920062 921033 922575 924138 925526 929160 931422 934136 934391 938815 939339 939653 943317 944020 929236 947076 953348 961548 957378 95751x 958043 963150 966612 969207 973411 973625 977385 978165 337607 9u5514 989195 989484

Proxy

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dare

hold.

hold

850226 841113 800311 850307 930309 840327 840309 800327 850322 830318 830422 850422 840326 Y50312 8’0326 830321 R40404 850107 830326 800331 S50408 850405 Y31028 841114 840328 x40430 810325 830316 540322 831205 R-l0524 R-40327 840112 800328 820521 841119 820106 lull01 830426 830405 840103 541019 850328 830323 830321 $40116 830405 840401 R30504 5303’5 830322 850408 a30311 830503 840621

11.2 45 49.0 52

I R6

39 6 22.1 57 3 34 7 60 8 57 3 406 50.2 21 5 48.4 90 12.6 32.9 10 9 52.2 97 112 7.8 112 25.0 10 5 56.7 55 5 406 568 7.1 142 32 20 16.3 17.7 16 7 19 3 45 6 38 6 2.0 12.5 50.9 1.3 11.9 0.0 37.5 214 180 00 65.0 27 7

19 1 5.9 14 5 0.3 2.3 56.4 1.6 2.5 14 2.9 45 5.7 50 2.6 02 03 1.9 29.3 06 15 1.3 98 16 7 1.9 13.0 36.7 47.1 35 12.0 3.8 14 1 31 0.5 20 5 52 30.4 29.1 23.7 17 8 34 8 25 1.0 14.0 3.7 20.1 19 6 74 67 1 R.8 33 0 23.6 20.1 12.5 10.4

Source’ SEC SEC k&C D. K K K D SEC D D. K SEC K SEC D D. K K SEC D D. K SEC SEC D. K SEC K K D K K D. K K K K K :EC D SEC D. K K K SEC SEC D. K D K D. K K D D. K D. K SEC D. K D. K K

‘D - Drexel Burnham. K - Kidder, Peabody. SEC - Secunries and Exchange Commission. SMB - supermaJority ‘AP - authorized preferred. CB - classified board. FP - fair price. SM - supermqonty. board-out proviwn.

J.F.E.-G

T)peb FP FP SMB FP FP FP FP S.MB AP SM FP SM FP FP SM FP FP SMB SMB FP AP FP FP FP FP ;z FP FP FP FP FP FP FP SM FP SM FP FP FP FP FP AP FP AP FP FP FP AP FP FP FP FP FP FP

with

166

~2.4 Jarrell und .A R. Paulsen, Shurk repellents and stock prtces

Appendix B Table 10 Firms for which no price data were found on ISL tape A uthoxation-of-preferred-stock sample American Underwriters Group Fuqua Industries Inc. McDonald’s Corp. Clussifwd-bourd sample Berg Enterprises Inc. Conifer Group Inc. F&-price sample Allied Tel. Co. Ambanc Corp. American Well Servicing Corp. Anchor Hocking Glass Corp. ANR Company Bangor Punta Alegre Sugar Corp. Beneficial Corp. CNB Bancshares Colonial Gas Company Commonwealth Federal Savings Bank Comtech Group International Ltd. Connecticut Energy Corp. Consolidated Tomoka Land Co. Credo Petroleum Corporation DCB Corp. Diamond National Corp. Di Giorgio Fruit Corp. Energy Methods Corporation Equity Oil Company Fairfield Communities Inc. Figgie International First American Corp. First Federal S&L of Austin First Glen Bancorp First Westn Fin1 Corp. Firstier Inc. Florida Westcoast Bank Inc. FSB Bancorporation GAB Bancorp Goddard Industries Gould Inc. Greyhound Corp. Hanover Financial Corporation H.B. Fuller Hecla Mining Co. Hilton Hotels Corp. HON Industries

Fair-prtce sample Joseph Dixon Crucible I. Waiter Thompson Co. Leaseway Transn. Corp. Liberty Federal Savings & Loan Modine Manufacturing Company Northeast Savings, F.A. Oden Corporation Ohio Scaly Mattress Mfg. Co. Ozark Airlines Pall Corp. Peoples Banking Corporation Pocono Hotel Corp. Ponce Federal Bank Purdue National Corp. RCA Santa Barbara Bancorp Seato Inc. Second National Corp. Sherbume Corp. Society Corporation Sonat Southeastern Savings & Loan Tech Sym Corp. The Progressive Corporation Union Bancorp Inc. United Water Resources Inc. U.S. Air Utah Bancorporation Whitney Holding Corporation Whitmere Corporation Pure supermajoriy sample Champion Reserve Corp. Eaton Corp. Federal Realty Invt. Trust Naples Federal S&L Terrydale Realty Trust Supermajoriy with board-out sample Calumet Industries Inc. City National Corp. Fremont General Corp. GF Corp. Landmark Financial Group Inc. Laser Precision Corp. Unocai

G-l.

Jorrell und ;l.B. Paulsen. Shurk rrprllenrs and srock prrces

Appendix C Table 11 Firms in sample with data problems. Firms wirh Insufficienr Daru in Prediction Period Fuir-prrce sample Ameriwest Financial Horizon Research Pandick Press Reltron Corporation

Corporation

SupermaJonrv with board-our procrston sample Kelly Se&ices Inc. Minnetonka Inc. Pure supermujort[v sample Laclede Steel Corporation Firms wirh Insufffcient Duru IOAr Regresston ,Vodei Fuir-prrce sumple BMC Industries Banknorth Group Hart Schaffner & Marx Muitnomah Kennel Club Scientific Industries Supernuyoriry with bourd-our precision sumple Continental Copper & Steel Industries A urhorized preferred sample Windsor Industries Flrnrs for Which Rerurns Were Set Equal to Zero on Daxs of Trrpe Errors or Confounding Eoenrs Fuir-prrce somple Coming Glass Works - incorrect adjustment for stock split, 2/13/85. Deluxe Check Printers Inc. - incorrect adjustment for stock split. 3/15/85. Gerber Products Co. - incorrect adjustment for stock split, 7/5/84. MCI Communications - errors in ISL tape. j/13/81. j/14/81. Plasma-Therm Corp. - errors in ISL tape. 2/22/85. 2/26/85. Supermujoriy wirh board-our provision sample Arden Group - trade halted 5/5/80. Danker Labs. Inc. - volume 20 times average.

return of 30%. 2/l/80.

Pure supermujori
167

168

G.A. JarreN and A. B. Paulsen, Shark repellents and stock prtces

References Bradley. Michael. 1980. Interfirm tender offers and the market for corporate control. Journal of Business 53, 345-376. Bradley. Michael and E. Han Rim, 1985, The evolution of the tender offer as a takeover device: An analysis of ownership structure, the free-rider problem, and the prisoner’s dilemma, Unpublished working paper (University of Michigan, Ann Arbor, MI). Brown. Stephen J. and Jerold B. Warner. 1985, Using daily stock returns: The case of event studies, Journal of Financial Economics 14. 3-31. Computer Directions Advisors, Inc., 1979-1985, Spectrum 3: 13(f) Institutional stock holdings survey. DeAngelo, Harry and Edward M. Rice, 1983, Antitakeover charter amendments and stockholder wealth, Journal of Financial Economics 11, 329-359. Drexel Bumharn Lambert. Inc., 1984, Shareholder protective amendment analysis (New York, NY). Easterbrook. Frank H. and Daniel R. Fischel, 1983, Voting in corporate law, Journal of Law and Economics 26, 395-427. Fama, Eugene F.. 1980. Agency problems and the theory of the firm, Journal of Political Economy 88. 288-307. Georgeson & Co., Inc., 1985. Shareholder protective charter amendments: How to assess the probability of shareholder adoption, Working memorandum (New York, NY). Grossman, Sanford J. and Oliver D. Hart, 1980, Takeover bids. the free-rider problem, and the theory of the corporation, Bell Journal of Economics 11, 42-64. Hochman, Stephen A. and Oscar D. Folger, 1979, Deflecting takeovers: Charter and by-law techniques. Business Lawyer 34, 537-574. Investor Responsibility Research Center, Inc., 1985a, Antitakeover charter amendments: A directory of major American corporations (Washington, DC). Investor Responsibility Research Center, Inc., 1985b. Corporate governance bulletin 1 (Washington, DC). Investor Responsibility Research Center. Inc., 1986, Antitakeover charter amendments: 1985 supplement (Washington, DC). Jarrell. Gregg A., 1985. The wealth effects of litigation by targets: Do interests diverge in a merge?, Journal of Law and Economics 28, 151-177. Ridder, Peabody & Co.. 1984, Effects of adoption of fair price amendments on stock prices and institutional ownership (New York, NY). Linn, Scott C. and John T. McConnell, 1983, An empirical investigation of the impact of antitakeover amendments on common stock prices. Journal of Financial Economics 11. 361-399. Office of the Chief Economist, Securities and Exchange Commission, 1985, The economics of any-or-all, partial. and two-tier tender offers (Washington, DC). Office of the Chief Economist, Securities and Exchange Commission, 1986, The effects of poison pills on the wealth of target shareholders (Washington. DC). Office of the Chief Economist. Securities and Exchange Commision. 1984. Shark repellents: The role and impact of antitakeover charter amendments (Washington, DC). Pound, John, 1987, The impact of antitakeover charter amendments on contests for control, Journal of Law and Economics. forthcoming. Sigler. Andrew, June 6. 1985. Statement before the subcommittee on securities of the committee on banking, housing and urban affairs, U.S. Senate (Washington. DC). Sommer. A.A., Jr.. 1984. Hostile tender offers - Time for a review of fundamentals. Unpublished paper (Morgan, Lewis and Bockius, Washington, DC).