Antitakeover Amendments, Ownership Structure, and Managerial Decisions: Effects on R&D Expenditure * Ali R. Malekzadeh St. Cloud State University Victoria B. McWilliams Villanova University 610 519 4313 (contact author) Nilanjan Sen Arizona State University West Abstract This study provides evidence that antitakeover amendments affect managerial behavior and provide long term implications for the firm. Our study links the change in R&D expenditure after amendment adoption to board composition and ownership structure. Results are consistent with the hypothesis that the amendments provide an environment that allows managers to focus on long term objectives. R&D expenditures significantly increased in the period subsequent to amendment adoption. Additionally, higher levels of R&D subsequent to amendment adoption are positively related to increasing levels of board representation as well as share ownership by directors who have some affiliation with the firm. * For further information, please contact: Victoria B. McWilliams; Chair, Department of Finance; College of Commerce and Finance; Villanova University; 800 Lancaster Ave.; Villanova, PA 19085; (610) 519 7395, (610) 519 6881 (fax), MCWILLIAM@CF_FACULTY.VILL.EDU (e mail). We are grateful to Steve Ferris, Tom McWilliams, Marty Meznar, Afsaneh Nahavandi, and participants at workshops held at Drexel University and Villanova University for comments on earlier drafts of this manuscript.
Antitakeover Amendments, Ownership Structure, and Managerial Decisions: Effects on R&D Expenditure I. Introduction The adoption of antitakeover amendments has been controversial leading to arguments opposed to and in favor of the amendments. Opponents of the amendments argue that they help to entrench management, allowing target managers to successfully prevent takeovers that could benefit shareholders. Amendment proponents suggest that the amendments increase incumbent manager s bargaining power to elicit higher bids for the target firm s shares (for example see DeAngelo and Rice, 1983 and Linn and McConnell, 1983). In addition, antitakeover amendments may also contribute to optimal managerial contracting. Knoeber (1986) argues that deferred compensation is a crucial component of optimal managerial contracts since, as time passes, the firm has better information about actual managerial performance. In hostile takeovers, incumbent managers may lose outstanding deferred compensation due to subsequent firing or the re writing of contracts. Hostile takeovers put high performing incumbent managers entitled to deferred compensation at risk of losing deferred claims. Antitakeover amendments allow for more effective managerial contracting since they protect against hostile takeovers and provide incentives for managers to pursue long term strategies. Several studies try to identify the stock price reaction to the amendments, and attempt to explain the cross sectional variation of that reaction (for summaries see Jensen and Ruback, 1983; Jarrell, Brickley, and Netter, 1988; and McWilliams, 1994). Results of these studies are mixed, leading to the conclusion that uncertainty remains regarding whether the amendments are beneficial or detrimental. Although these results are mixed, several studies demonstrate that the stock price reaction to the amendments is affected by board composition and ownership stake in the firm (e.g., Jarrell and Poulsen, 1987; Agrawal and Mandelker, 1990; McWilliams, 1990; McWilliams and Sen, 1997). Our
study moves away from trying to explain the stock price reaction to the amendments, and instead focuses on trying to understand whether, over time, the amendments affect managerial behavior and have long-term implications for the firm under an appropriate governance structure. Specifically, we seek to determine whether there is a relation between the change in R&D expenditure subsequent to amendment adoption and the adopting firm s ownership structure and board composition. If the amendments do provide an environment conducive to long term contracting, as suggested by Knoeber (1986), then after adoption we should observe managers focusing on longer term, riskier endeavors such as R&D ventures which have been shown to have the potential for long term profitability and firm value enhancement. For example, Ben Zion (1984) tests whether the firm s market value is related to R&D expenditure, and finds a statistically significant positive relation between the firm s investment in R&D and market value, and Lichtenberg and Siegel (1991) report positive returns to R&D investment. Further, Sundaram, John, and John (1996) find a positive market reaction to R&D spending when the announcing firm s competitors adopt a matching strategy. One objective of this study is to determine whether, in the presence of antitakeover amendments, such focus on the firm s long term objectives occurs when managers hold an increasing ownership stake in the firm and have increased representation on the board. Additionally, Stein (1988) develops a theory which suggests that managerial behavior is affected by the potential of takeover threat. When takeover threats exist, managers may focus on less profitable short term projects to increase current profitability at the expense of more profitable long term endeavors. Antitakeover amendments, which ostensibly protect against unwanted takeovers, should provide managers the protection required to allow them to shift focus to long term projects and expenditures. Meulbroek, Mitchell, Mulherin, Netter, and Poulsen (1990) and Pugh, Page, and Jahera (1992) test Stein s theory. Meulbroek, et al. report that R&D expenditures decrease after amendment
adoption; however, Pugh, Page, and Jahera conclude that both R&D and capital expenditures increase subsequent to amendment adoption. Hall and Weinstein (1996) take a different approach by looking at firms actions in periods of financial distress. If U.S. managers are more myopic than Japanese managers, then, in episodes of financial distress, U.S. firms would decrease their R&D expenditure more than Japanese firms. However, Hall and Weinstein find that financial distress causes R&D to fall in both countries by approximately the same amount. Our study extends the work of Meulbroek, et al. and Pugh, et al. by linking the change in R&D expenditure after amendments are adopted to the firm s ownership structure and board composition. Knoeber s (1986) arguments related to antitakeover amendments and Stein s (1988) theory about managerial behavior lead us to hypothesize that there is a relation between the change in R&D expenditures following amendment adoption and the firm's ownership structure. More specifically, as insider and affiliated outside directors hold an increasingly high level of the firm s shares, these directors should have incentives which are more closely aligned with those of outside shareholders, leading them to take actions which maximize shareholder wealth (Jensen and Meckling, 1976). One such action would be increasing R&D expenditures, which is positively related to the firm s market value (Ben Zion, 1984). Therefore, we hypothesize that there is a positive relation between insider and affiliated outsider directors share ownership and the change in R&D expenditures once the amendments are adopted. Similarly we also expect a positive relation between the proportion of insider and affiliated outsider directors on the board and the change in R&D expenditure subsequent to amendment adoption. If the amendments, due to their protection against hostile takeovers, provide managers the opportunity to adopt a long term value maximizing focus, then we should observe an increase in R&D expenditure once the amendments are in place. This increase should occur especially when the board is increasingly controlled by individuals who have an
affiliation with the firm, whether as employees or by some other connection (e.g., firm s banker), since these individuals have the most to gain from the takeover protection. Our results suggest that the amendments provide long term benefits for the firm and affect managerial incentives. The compositions of the board along with the firm s ownership structure affect R&D strategy once antitakeover amendments are adopted. Results indicate that firms adopting antitakeover amendments significantly increase their R&D expenditure in subsequent periods. Further, the increase in R&D expenditure is positively related to the extent of share ownership and representation on the board by insiders and affiliated outside directors. The manuscript proceeds with Section II describing the sample and methodology, while Section III presents test results. Section IV contains concluding remarks. II. Sample and Methodology A. Sample We identify 265 firms that propose antitakeover amendments during the period 1980 through 1990. We focus on three specific amendments whose unambiguous function is to act as a takeover defense. These amendments are fair price, staggered board, and supermajority vote amendments. Other types of amendments are not considered in this study because they may be used for purposes other than defending against takeover. For example, the authorized issuance of common/preferred stock may be used in the event of a hostile takeover to establish a poison pill rights offering and, therefore, is categorized as an antitakeover amendment. However, the authorization may instead be used as a source of new financing for positive NPV projects, which has nothing to do with fighting an unwanted takeover attempt. The sample is constructed from two primary sources. Relevant firms (i.e., those that propose fair price, staggered board, supermajority vote amendments) are identified from McWilliams (1990). The second primary source for sample firms is a data base maintained
by IRRC that identifies additional firms, from 1984 through 1990, which adopted fair price, staggered board, and/or supermajority vote amendments. i The sample includes 90 firms due to the lack of R&D expenditure data for other firms adopting antitakeover amendments during the 1980 1990 time period. Our sample is smaller than the Meulbroek et al. (1990) sample because we focus on the three amendments described above due to their unambiguous takeover defense function, while the Meulbroek et al. sample includes other types of antitakeover amendments. ii To determine board composition, we use a three way classification technique described in Byrd and Hickman (1992) and developed by Baysinger and Butler (1985). We use information contained in the sample firm s proxy statement the year of amendment proposal to identify inside directors, outside affiliated directors, and independent outside directors. Inside directors are those individuals who are current officers of the firm (i.e., current employees) or former employees who are currently retired. A director is classified as outside affiliated when that individual either is or was associated with the firm in some capacity (e.g., firm s legal council, commercial banker, investment banker), but is not an employee of the firm. Independent outside directors are those individuals who have no affiliation, past or present, with the firm other than their position on the firm s board of directors (e.g., private investors, executives from other firms with no business dealings with the sample firm). In addition to the information described above, we collected several other variables for this study from the sample firms proxy statements. Specifically, we identify the proxy mailing date to verify when the amendments were proposed to shareholders, board share ownership, share ownership by various groups of directors, and managerial shareholdings. There are 84 sample firms for which the share ownership information is available.
B. Methodology Regression analysis is used to determine whether significant relations exist between the change in R&D expenditure once amendments are adopted and various measures of board composition and share ownership. These variables include board composition, board share ownership, managerial (i.e., officers and directors as a group) share ownership, and non director managerial share ownership. Table 1 reports board composition and share ownership descriptive statistics. (Insert Table 1) Independent outside directors control, on average, 55.2% of the board positions for sample firms, with a minimum of 11.1% and a maximum of 88.9% of positions controlled. However, the average proportional representation of insiders on the board is only 32.0%, with a minimum of 9.1% and a maximum of 77.8% of positions controlled. Officers and directors as a group own an average of 9.9% of firm shares, while average board share ownership is 8.9%. Further, independent directors and inside directors own, on average, 0.9% and 6.2% of firm shares, respectively. The dependent variable in the regression models is the firm s percentage change in R&D expenditure from one year prior to amendment adoption to three years after amendment adoption. iii Because R&D expenditures may be affected by firm size and industry, we create a variable, similar to Pugh, Page, and Jahera (1992), to measure the change in R&D which controls for both size and industry. We control for firm size in two ways. First, we scale the firm s R&D expense by the firm s total asset value during the relevant year; second, we scale the R&D expense by the firm s annual sales during the relevant year. Next, we divide the scaled R&D expense by the scaled industry average R&D expense in the appropriate year. We obtain the industry R&D ratios for each of the sample firms four digit SIC codes using COMPUSTAT data. Once we divide the firm s scaled R&D expense ratio by the industry average ratio, we have a measure of the firm s adjusted ratio during the appropriate years, which controls for size and industry. Values
greater than 1 indicate that the firm s R&D is increasing faster than its industry s R&D, while values less than 1 indicate the opposite. Finally, for three time periods, one year before adoption vs. one, two, and three years after adoption [( 1, +1); ( 1, +2); ( 1, +3)], we calculated the percentage change in R&D expense, which is the simple change between the measure after (t+1, +2, and +3) vs. before (t 1) amendment adoption, divided by the R&D measure in the time period t 1. Positive numbers indicate an increase in R&D expenditure once amendments are in place. III. Results A. Changes in R&D Expenditures Table 2 presents changes in R&D expenditures for sample firms during the three time intervals described above. The size and industry adjusted percentage change in R&D is positive, regardless of the time interval examined and the scale variable for size. We use a standard one tailed t test to test for a significant increase in the percentage change in the size and industry adjusted R&D expenditures after amendment adoption. Results reported in Table 2 indicate that all percentage changes are significantly greater than zero regardless of whether we scale R&D expense by total assets or sales, although we obtain higher significance levels when the scale variable is assets. Table 2 results are consistent with the findings of Pugh, Page, and Jahera (1992) and indicate that firms adopting antitakeover amendments, on average, increase their R&D expenditures. iv This finding is consistent with the notion that the amendments provide an environment conducive to long term investment since it demonstrates that, in the presence of antitakeover amendments which ostensibly protect against hostile takeovers, we observe managers focusing on longer term, riskier endeavors such as R&D which will potentially enhance firm value and long term profitability (Ben Zion 1984). B. Board Composition and Share Ownership
(Insert Table 3) The next part of our hypothesis suggests that there is a relation between the change in R&D expenditure subsequent to amendment adoption and the firm's board composition and ownership structure. Therefore, our next analyses focus on explaining the cross sectional variations of the percentage change in R&D expenditures during the interval ( 1, +3). Table 3 presents regression results for determining whether the change in R&D expense is related to board composition. The coefficient estimates for the percent of inside plus affiliated outside directors variables are significant, regardless of whether we use total assets or sales to scale the R&D expense measure. As the proportion of inside plus affiliated outside directors on the board increases, so does investment in R&D expenditure after amendments are adopted. Specifically, for the model that uses the R&D measure scaled by assets as the dependent variable, we can conclude that, when the proportion of inside plus affiliated outside directors on the board is zero, the percentage change in R&D expenditure is negative, but becomes positive as the board representation proportion reaches approximately 36 percent. v Table 4 presents results that demonstrate that a significant relation exists between the percentage change in R&D expense subsequent to amendment adoption and ownership structure. In addition to categorizing share ownership according to type of director, we include measures for managerial share ownership (i.e., officers and directors as a group); board share ownership, in general; and non director managerial share ownership, defined as managerial share ownership less the percent of shares owned by all of the firm s directors. (Insert Table 4) Intercept coefficient estimates are significantly negative in all four models when total assets scale the R&D measure. For both Panel A and Panel B, the only slope coefficient estimates that are significant are for managerial share ownership, board share ownership, insider board share ownership, affiliated outsider board share ownership, and insider plus
affiliated outsider board share ownership. While all four regression models are significant regardless of whether we scale R&D by assets or sales, R 2 values are lower when the scale variable is sales. The results of Table 4 indicate that managerial and board shareholdings positively affect the firm s investment in R&D expenditures subsequent to amendment adoption. However, for the model that includes board and non director managerial share ownership (Model 2), only the board coefficient estimate is significant. This indicates that board ownership, rather than non director ownership, is responsible for the significant relation we observe. This result suggests that the level of increase in R&D expenditure is predicated on the board s ownership stake in the firm. When we further categorize share ownership according to director type, only insider, affiliated outsider, and the insider plus affiliated outsider board ownership variables are significant (Models 3 and 4). These results suggest that increases in R&D expenditures are related to increases in share ownership of directors who have some affiliation with the firm, rather than to ownership of those directors who are independent of the firm. The combined results of Tables 3 and 4 support the hypothesis that there is a positive relation between the change in R&D expenditures following amendment adoption and the proportion of insider and affiliated outsider directors on the board, as well as this group of directors' ownership stake in the firm. Our results are consistent with the theories developed by Stein (1988) and Knoeber (1986). By protecting against unwanted takeovers, the amendments appear to provide managers the protection required to allow them to focus on long term projects and expenditures, such as R&D, which have the potential for higher profitability and firm value enhancement, as opposed to focusing on short term projects. Further, as insider and affiliated outside directors hold an increasingly high level of the firm's shares, they are accepting a form of deferred compensation since their personal wealth is more closely linked to firm value. The hostile takeover protection provided by the amendments may allow for more effective managerial
contracting since, ceteris paribus, managers now will be more willing to accept deferred compensation, and will be willing to pursue long term strategies, as reflected in R&D expenditures, which have the potential to increase inside and outside shareholder value. An alternative explanation may exist for our results. Because R&D expenditures are expected to generate returns for the firm over time, R&D expenditures may actually be a manifestation of an agency problem. That is, managers, in order to effectively entrench themselves, may make investments in long-term investments that are not necessarily expected to be value enhancing. Based on the combined results of Tables 3 and 4, managers are likely to increase R&D expenditures when insiders have higher representation on the board or when they hold increasing ownership stake in the firm. This alternative interpretation of our results is consistent with McWilliams and Sen (1997) who conclude that the stock price reaction to antitakeover amendments is more negative for firms with boards dominated by inside plus outside affiliated directors. McWilliams and Sen also conclude that the reaction becomes increasingly negative as inside plus outside affiliated directors increase their ownership stake in the firm. Our final regression analyses combine board composition and share ownership for directors with an affiliation to the firm either as insiders or affiliated outsiders. In these analyses we use per capita share ownership due to multicollinearity between board composition and board share ownership variables. Further, monitoring intensity is better captured by per capita share ownership since it more directly measures the extent to which individual directors are stakeholders in the firm. Table 5 presents these results. (Insert Table 5) Model 1 uses the R&D measure scaled by assets as the dependent variable, while Model 2 uses the R&D measure scaled by sales. The intercept coefficient estimate is significant for Model 1 only (scale variable is assets). The slope coefficient estimates are significant for the percent of inside plus affiliated outside directors in both models. The per capita share ownership coefficient estimate is significantly positive only when R&D is
scaled by assets. Again we see that the R 2 value is higher when we control for size by using assets rather than sales. The results of combining both board composition and ownership structure in our model confirm the conclusion that these two variables affect R&D strategy once antitakeover amendments are adopted. The increase in R&D expenditure which occurs subsequent to the firm adopting antitakeover amendments is positively related to the extent of share ownership and representation on the board by insiders and affiliated outside directors. IV. Conclusions Our study extends the work of Meulbroek, Mitchell, Mulherin, Netter, and Poulsen (1990) and Pugh, Page, and Jahera (1992) by linking the change in R&D expenditure after antitakeover amendment adoption to the firm s board composition and board ownership structure. There are two primary conclusions for this study. First, because we observe significant increases in R&D expenditures after amendment adoption, we conclude that, in general, the amendments provide an environment conducive to long term investment since, in the presence of antitakeover amendments which are designed to protect against hostile takeovers, we observe managers focusing on longer term, riskier endeavors such as R&D which will potentially enhance firm value and long term profitability. Second, the study allows us to identify the circumstances under which managerial behavior, as it relates to R&D investment, is positively affected by the adoption of the amendments. Specifically, both higher proportional representation on the board and equity ownership in the firm by insider/affiliated outsider directors are associated with increasing investment in more long term projects, as reflected in the percentage change in R&D expenditures. The results are consistent with the premise that the amendments may allow for more effective managerial contracting since they protect against unwanted takeovers and, therefore, provide incentives for managers to pursue long term, value enhancing strategies.
The results of this study are particularly interesting in light of the mixed results of earlier studies that attempt to identify the stock price reaction to the amendments, and to explain the cross sectional variation of that reaction. That is, the mixed results of earlier studies fail to identify definitively whether the amendments are expected to be beneficial or detrimental to shareholders. The results of this study provide information about one specific long term effect of the amendments, the potential for higher levels of R&D expenditure subsequent to amendment adoption. We also observe that these changes in R&D expenditure are associated with increasing levels of board representation as well as share ownership by directors who have some affiliation with the firm.
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FOOTNOTES Table 1 Director and Share Ownership Descriptive Statistics The sample reflects firms adopting fair price, staggered board, and supermajority vote amendments from 1980 through 1990 for which data are available (N = 84). All variables are reported as a percentage. Managerial share ownership is the percent of shares owned by the firm s officers and directors. Variables Mean Minimum Maximum Standard Deviation Independent Outside Directors 55.2 11.1 88.9 18.2 Affiliated Outside Directors 12.8 0.0 66.7 14.4 Inside Directors 32.0 9.1 77.8 15.6 Inside plus Affiliated Outside Directors 44.8 11.1 88.9 18.2 Board Share Ownership 8.9 0.03 56.5 12.4 Independent Outside Director Share Ownership 0.9 0.0 12.0 2.2 Affiliated Outside Director Share Ownership 1.8 0.0 33.0 5.3 Inside Director Share Ownership 6.2 0.0 43.7 11.0 Inside Plus Affiliated Outside Director Share Ownership 8.1 0.0 56.5 12.2 Managerial Share Ownership 9.9 0.1 46.6 11.6 Non director Managerial Share Ownership 1.0 0.0 13.2 1.8 Table 2 R&D Expenditure Changes The sample reflects firms adopting fair price, staggered board, and supermajority vote amendments from 1980 through 1990 for which data are available. R&D expenditure data are available for 90 sample firms. All variables are reported as a percentage. R&D Change is the size and industry adjusted percentage change in R&D expense from one year before to one, two, and three years after amendment adoption. A standard one tailed t test is used to test for a significant increase in the percentage change in the size and industry adjusted R&D expenditures after amendment adoption. Variables Mean (R&D measure scaled by assets) t statistic Mean (R&D measure scaled by sales) t statistic R&D Change ( 1, +1) 9.0 2.85 * 7.2 1.77 ** R&D Change ( 1, +2) 11.5 2.58 * 9.7 1.52 ***
R&D Change ( 1, +3) 9.1 2.14 ** 12.8 2.10 ** * Significant at 1%; ** Significant at 5%; *** Significant at 10%. Table 3 Results of Regression Analysis for Size and Industry adjusted Percentage Change in R&D Expense from the Year Before to Three Years After ( 1, +3) Amendment Adoption The sample reflects 90 firms adopting fair price, staggered board, and supermajority vote amendments from 1980 through 1990 for which data are available. Independent variables are measures of board composition as a percent of total number of directors. A standard two tailed t test is used to test for significant coefficient estimates. Variable Coefficient t statistic R 2 Panel A: R&D measure scaled by assets Intercept 0.226 2.27 ** Inside Plus Affiliated Outside Directors as a Percent of Total Directors 0.621 3.01 *.10 Panel B: R&D measure scaled by sales Intercept 0.212 1.27 Inside Plus Affiliated Outside Directors as a Percent of Total Directors 0.739 2.13 **.05 * Significant at 1%; ** Significant at 5%. Table 4 Results of Multiple Regression Analysis for Size and Industry adjusted Percentage Change in R&D Expense from One Year Before to Three Years After ( 1, +3) Amendment Adoption. The sample reflects 84 firms adopting fair price, staggered board, and supermajority vote amendments from 1980 through 1990 for which data are available. Independent variables are measures of share ownership and are measured as a percent of the firm s total shares outstanding. Managerial share ownership is the percent of shares owned by the firm s officers and directors. A standard two tailed t test is used to test for significant coefficient estimates. Variables Model 1 Model 2 Mo Panel A: R&D measure scaled by assets 0.091 0.0 Intercept 0.108 ( 2.43) ** ( 1.88) *** ( 1 Managerial Share Ownership 0.016 (5.55) * Board Share Ownership 0.015 (5.49) * Non director Managerial Share Ownership 0.005 (0.28) 0. (0
Independent Outside Board Share Ownership 1. ( 0 Insider Board Share Ownership 1. (4 Affiliated Outsider Board Share Ownership 2. (3 Insider Plus Affiliated Outsider Board Share Ownership F statistic 30.81 * 15.24 * 8 R 2 0.27 0.27 0
Table 4 (continued) Results of Multiple Regression Analysis for Size and Industry adjusted Percentage Change in R&D Expense from One Year Before to Three Years After ( 1, +3) Amendment Adoption. The sample reflects 84 firms adopting fair price, staggered board, and supermajority vote amendments from 1980 through 1990 for which data are available. Independent variables are measures of share ownership and are measured as a percent of the firm s total shares outstanding. Managerial share ownership is the percent of shares owned by the firm s officers and directors. A standard two tailed t test is used to test for significant coefficient estimates. Variables Model 1 Model 2 Mo Panel B: R&D measure scaled by sales Intercept 0.021 ( 0.26) 0.025 (0.22) Managerial Share Ownership 0.014 (2.63) * Board Share Ownership 0.014 (2.88) * Non director Managerial Share Ownership 0.281 ( 0.81) Independent Outside Board Share Ownership 2 ( 0 Insider Board Share Ownership 1 (2 Affiliated Outsider Board Share Ownership 3 ( Insider Plus Affiliated Outsider Board Share Ownership F statistic 6.99 * 4.37 * R 2 0.07 0.09 * Significant at 1%; ** Significant at 5%; *** Significant at 10%. Table 5 Results of Multiple Regression Analysis for Size and Industry adjusted Change in R&D Expense from the Year Before to Three Years After Amendment Adoption ( 1, +3) Based on Board Composition and Per capita Share Ownership. The sample reflects 84 firms adopting fair price, staggered board, and supermajority vote amendments from 1980 through 1990 for which data are available. Independent variables are measures of board composition as a percent of total number of directors along with per capita share ownership. A standard two tailed t test is used to test for significant coefficient estimates. Variables Model 1 R&D measure scaled by assets 0 (0 0 ( 0
Intercept 0.270 ( 2.67) * Inside Plus Affiliated Outside Directors as a Percent of Total Directors 0.616 (3.03) * Per capita Insider Plus Affiliated Outsider Board Share Ownership 2.372 (1.87) *** F statistic 6.40 * R 2 0.14 * Significant at 1%; ** Significant at 5%; *** Significant at 10%. i We are grateful to parties at the New York Stock Exchange; Kidder, Peabody, and Co.; and IRRC for making these data available to us. ii The same observation applies to our sample as it relates to Pugh, Page, and Jahera (1992) since they take their sample from Meulbroek et al. iii The four year interval, measured as ( 1, +3), was chosen as the dependent variable in the regression models presented in Tables 3, 4, and 5 because we felt that the longest interval reflected the cumulative effect of the amendments on changes in R&D expenses. However, regression results using the other two intervals reported in Table 2 are not qualitatively different from the ones reported for the ( 1, +3) interval and are available on request. iv Our findings and the findings of Pugh, et al. are inconsistent with results reported by Meulbroek, et al. (1990). Pugh, Page, and Jahera construct their sample from the same sample used by Meulbroek, et al., and indicate that there are differences in sample sizes between the their study and Meulbroek, et al. because, for example, Meulbroek, et al. include insignificant observations (Compustat code.0008) in their sample. However, when Pugh, et al. attempt to replicate the Meulbroek, et al. sample, they are still unable to reproduce the results reported in Meulbroek, et al.
v The regression results for the analysis using the percentage of independent outside directors as the independent variable are not reported since this percentage is a linear function of the percentage of inside plus affiliated outside directors on the board and, therefore, contains the same information as the regressions reported in Table 3.