Financial Decisions - Document Index

Antitakeover Amendments and Analysts’ Long-Term

Earnings Forecasts

Michael Lacina

University of Houston Clear Lake

Abstract

This paper utilizes the one year changes in analysts’ long-term earnings growth forecasts from the I/B/E/S database to provide evidence on whether antitakeover charter amendments promote stockholders’ interests or lead to managerial entrenchment. One year changes in analysts’ long-term earnings growth forecasts have a number of advantages over previous measures that have been used to study the financial effects of antitakeover amendments. The results for the entire sample show a negative and weakly significant one year change in long-term earnings forecasts following antitakeover charter amendment proposals, providing some support for managerial entrenchment. The findings appear to be driven by firms with amendments that receive high shareholder support. For these firms, the long-term earnings forecasts strongly decrease in the year following the amendment proposal. The high support could indicate a lack of stock held by dissident shareholders who monitor the actions of management, implying that the adoption of antitakeover amendments without sufficient monitoring of management leads to managerial entrenchment.

Keywords: Antitakeover charter amendment, analysts’ long-term earnings growth forecasts, stockholder voting