Working Paper: CEPR ID: DP3445
Authors: Lucian Arye Bebchuk
Abstract: This Paper argues that once undistorted shareholder choice is ensured ? which can be done by making it necessary for hostile bidders to win a vote of shareholder support ? boards should not have veto power over takeover bids. The Paper considers all of the arguments that have been offered for board veto ? including ones based on analogies to other corporate decisions, directors? superior information, bargaining by management, pressures on managers to focus on the short-run, inferences from IPO charters, interests of long-term share-holders, aggregate shareholder wealth, and protection of stakeholders. Examining these arguments both at the level of theory and in light of all available empirical evidence, the Paper concludes that none of them individually, nor all of them taken together, warrants a board veto. Finally, the Paper discusses the implications that the analysis has for judicial review of defensive tactics.
Keywords: corporate control; corporate governance; mergers and acquisitions; takeover bids; takeover defenses; takeovers and tender offers
JEL Codes: G30; G34; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| board veto power (D72) | negative outcomes for target shareholders (G34) |
| board veto power (D72) | shareholder wealth (G34) |
| absence of board veto power (G34) | more efficient corporate governance (G38) |
| eliminating board veto (D72) | enhanced managerial accountability (G38) |
| board veto (D72) | ex post agency costs (G34) |