Working Paper: NBER ID: w8148
Authors: Lucian Arye Bebchuk; Allen Ferrell
Abstract: The development of U.S. state takeover law in the past three decades has produced considerable and quite possibly excessive protection for incumbent managers from hostile takeovers. Although the shortcomings of state takeover law have been widely recognized, there has been little support for federal intervention because of the concern that such intervention might produce even worse takeover arrangements. This paper puts forward a novel form of federal intervention in the regulation of takeovers that would address these shortcomings without raising such a concern. Rather than mandating particular substantive takeover arrangements, this form of federal intervention would focus on increasing shareholder choice. Choice-enhancing' federal intervention would consist of two elements: (i) an optional body of substantive federal takeover law which shareholders would be able to opt into (or out of) and (ii) a mandatory process rule that would provide shareholders the right to initiate and adopt, regardless of managers' wishes, proposals for opting into (or out of) the federal takeover law. We argue that such a federal role in takeover law cannot harm and would likely improve the regulation of takeovers. Moreover, by showing how federal law can be used to improve regulatory competition in the provision of takeover law rather than preempt it, our analysis lays the groundwork for a more general reconsideration of regulatory competition in the corporate law area.
Keywords: Corporate Law; Takeover Regulation; Federal Intervention; Shareholder Rights
JEL Codes: K22; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| state takeover laws (H13) | power to incumbent managers (G34) |
| power to incumbent managers (G34) | reduced opportunities for hostile takeovers (G34) |
| reduced opportunities for hostile takeovers (G34) | harm to shareholder interests (G34) |
| state takeover laws (H13) | harm to shareholder interests (G34) |
| federal optional takeover regime (G34) | harm to shareholder interests (G34) |