tolookateventsthatchangethatexpectedvalue.Wehave
already pointed to three events that cause this to happen:
hostile acquisitions ofother firms, CEOreplacements, and
corporate governance reforms.
Hostile Acquisitions
Ifthepricesofallstocksreflecttheexpectedvalueofcontrol,
anyactionsthatmakehostileacquisitionsmoreorlesslikely
willaffectstockprices.Anobviousexampleiswhenthestate
passeslawsthatmakeacquisitionsmoreorlesslikely.Earlier
inthechapter,wereferencedthelawpassedbythestateof
Pennsylvaniain 1989 to restrict takeoversof companiesin
that state. Karpoff and Malatesta (1990) examined the
consequencesofthislaw,andfoundthatthestockpricesof
Pennsylvania-basedfirmsdropped(afteradjustingformarket
movements),onaverage,1.58percentonOctober13,1989,
thefirstdayanewsstoryonthelawappeared.Overtheentire
period,fromthefirstnewsstorytotheintroductionofthebill
intothePennsylvanialegislature,thesefirmssawtheirstock
prices decline 6.9 percent.
43 Asubsequentstudyreinforcedtheirfindingsandestimated
atotallossinmarketvalueof$4billionasaconsequenceof
thelaw,thoughcompaniesoptingoutofthelawrecovereda
significant portion of this lost value.
44
Itshouldalsobenotedthatitisnotonlythefirmthatisthe
targetofahostiletakeoverthatisaffectedbyitsoccurrence.
Allotherfirmslikeitareputonnotice,andwewouldexpect
theirstockpricestoreflectthehigherlikelihoodoftakeovers.
In a study of 312 large British firms, Weir, Laing, and
McKnight (2002) find thatfirms that arein sectors where