Corporate governance and strategic action within the context of antitakeover corporate charter amendments

To reduce conflict of interests between stockholders and management, agency theory indicates several monitoring mechanisms, including internal board of director control and the external "market for corporate control." Management theorists and economists have independently conducted previous research on these mechanisms.Management researchers have examined the relationship between board characteristics and firm performance implicitly assuming a direct relationship. However, only in a limited set of decision contexts can a direct impact of board governance be observed (Kosnik, 1987).This dissertation examines board governance characteristics within the context of antitakeover amendment adoption, one of the most important of these decision contexts that involve conflict of interests between stockholders and management. The basic premise of this dissertation is that the adoption of antitakeover amendments is an important board-level decision that affects the influence of the market for corporate control. Such amendments can preserve the disciplining aspects of the market for corporate control while restricting practices that are not beneficial to all stockholders.Drawing from agency theory, this dissertation offers a governance model. The type of antitakeover amendments a firm adopts depends on three factors: an effective governance structure, the alignment of managerial and stockholders' interests, and stockholder control.A cross-sectional test of the proposed relationships based on a sample of 232 Standard & Poor's 500 firms as of 1985, indicates the relevance of board governance structure, alignment of interests, and stockholder control as predictors of antitakeover amendment adoption. Results also emphasize the importance of ownership factors (CEOs and institutional investors' stock ownership), in predicting adoptions. These results support and extend previous board governance literature. However, results of a five year assessment of the data indicate no systematic relationship across time, indicating that agency theory alone cannot adequately predict antitakeover amendment adoption.Firms that adopted contradictory amendments from an agency standpoint were qualitatively examined. Results of a content analysis of the proxy statements of three of these firms indicate that they often packaged positive and negative amendments in one proposal, and used three major themes to persuade stockholders to adopt antitakeover amendments: board unanimity, shareholders' interests, and the negativity of takeover tactics.U of I OnlyETDs are only available to UIUC Users without author permissio