These include dual class recapitalization, classified boards, supermajority requirements, fair price provisions and elimination of cumulative voting.
Four studies evaluate the impact of dual class recapitalization on stock prices, and find mixed effects.
These findings are also supported by Akhigbe and Madura (1996) with respect to long-term valuation and by Hanson and Song (1995) in the case of dual class recapitalization provisions adopted in the 1980s.
Poulsen, 1988, "Dual Class Recapitalization as Antitakeover Mechanisms: The Recent Evidence," Journal of Financial Economics (January) 129-152.
These alternative methods include equity carve-outs, dual class recapitalizations, and spin-offs.
This view is consistent with the argument that dual class recapitalizations entrench corporate insiders and diminish operating efficiency.
In addition to the tests identified above, we also consider the impact of the level of insider ownership before the dual class recapitalization on changes in each of the alternative monitoring mechanisms.
For each company, we consulted the S&P Register for information on board members for the second year preceding and the second year following the dual class recapitalization announcement.
To test this hypothesis, we compared the average dividend payout ratio for the period surrounding the announcement of the dual class recapitalization. Payout ratios can be unstable because of the volatility of earnings.
Sisneros, 1992, "Substitute for Voting Rights: Evidence from Dual Class Recapitalizations
," Financial Management (Autumn), 35-47.
The SEC, however, adopted a rule in 1988 that regulates the use of dual class recapitalizations, which purportedly were used often as antitakeover defenses.
In most dual class recapitalizations, companies offer their stockholders an opportunity to exchange their common stock for a new class of common stock with lower voting rights and, usually, a higher dividend.