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Federalism and Takeover Law: The Race to Protect Managers from Takeovers

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  • Lucian Arye Bebchuk
  • Allen Ferrell

Abstract

This paper analyzes certain important shortcomings of state competition in corporate law. In particular, we show, with respect to takeovers, states have incentives to produce rules that excessively protect incumbent managers. The development of state takeover law, we argue, is consistent with our theory. States have adopted antitakeover statutes that have little policy basis, and, more importantly, they have provided managers with a wider and more open-ended latitude to engage in defensive tactics than endorsed even by the commentators most favorable to such tactics. Furthermore, states have elected, even though they could have done otherwise, to impose antitakeover protections on shareholders, who did not appear to favor them, in a way that left shareholders with little choice or say. Finally, we conclude by pointing out that proponents of state competition cannot reconcile their views with the evolution of state takeover law---and should therefore reconsider their unqualified support of state competition.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7232.

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Date of creation: Jun 2000
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Publication status: published as "Federalism and Corportate Law: The Race to Protect Managers from Takovers." Columbia Law Review, vol. 99, no.5, pp. 1168-1199 (1999)
Handle: RePEc:nbr:nberwo:7232

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Cited by:
  1. Bebchuk, Lucian Arye & Cohen, Alma, 2002. "Firms' Decisions on Where to Incorporate," CEPR Discussion Papers 3514, C.E.P.R. Discussion Papers.
  2. Sergey Stepanov, 2007. "Shareholder Access to Manager-Biased Courts and the Monitoring/Litigation Tradeoff," Working Papers w0106, Center for Economic and Financial Research (CEFIR).
  3. Wolfgang Kerber, 2006. "An Optional European Contract Law Code: Advantages and Disadvantages," Marburg Working Papers on Economics 200607, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  4. Naomi R. Lamoreaux & Jean-Laurent Rosenthal, 2006. "Contractual Tradeoffs and SMEs Choice of Organizational Form, A View from U.S. and French History, 1830-2000," NBER Working Papers 12455, National Bureau of Economic Research, Inc.
  5. Lucian Bebchuk & Alma Cohen, 2002. "Firms' Decisions Where to Incorporate," NBER Working Papers 9107, National Bureau of Economic Research, Inc.
  6. Oren Bar-Gill & Michal Barzuza & Lucian Bebchuk, 2006. "The Market for Corporate Law," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(1), pages 134-160, March.
  7. Rajeeva Sinha, 2004. "The role of hostile takeovers in corporate governance," Applied Financial Economics, Taylor & Francis Journals, vol. 14(18), pages 1291-1305.
  8. Sinha, Rajeeva, 2006. "Regulation: The market for corporate control and corporate governance," Global Finance Journal, Elsevier, vol. 16(3), pages 264-282, March.

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