Managers typically increase their voting power following the creation of two classes of common stock and the adoption of an employee stock ownership plan. These changes can worsen managers' incentives and lead to a decline in performance. Alternatively, two classes of stock and ESOPs can allow managers to adopt value-maximizing policies that would not be possible in the face of takeover pressure. We find that these events are followed by below normal operating income. However, we find no reliable evidence that the increase in managers' voting power and the resulting divergence between managers' voting power and ownership of equity claims is related to subsequent operating performance.

We study the joint distribution of ownership, performance, managerial turnover, and takeover activity at repurchasing firms during a five-year period centered on the repurchase, and compare this to the distribution of these variables for a control sample selected on the basis of size and industry. This evidence illuminates the link between defensive activity and performance, as well as the impact of defensive activity on the experience of firms and managers. We find that the performance of firms that pay greenmail is no worse than the performance of firms of similar size that operate in the same industry, either prior to the repurchase or following the repurchase. The fate of managers at firms that pay greenmail appears to reflect their performance, as does the occurence of takeover activity. The frequency of takeover activity cannot be distinguished from the frequency of takeover activity at firms involved in a 13-D filing. Bid premia appear to be unaffected by the payment of greenmail.