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The Case Against Board Veto in Corporate Takeovers

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  • 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 shareholders, 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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9078.

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Date of creation: Jul 2002
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Publication status: published as Bebchuk, Lucian Arye. 58. “The Case Against Board Veto in Corporate Takeovers." University of Chicago Law Review 69 (2002): 973-1035.
Handle: RePEc:nbr:nberwo:9078

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Cited by:
  1. Marc Goergen & Marina Martynova & Luc Renneboog, 2005. "Corporate Governance Convergence: Evidence From Takeover Regulation Reforms in Europe," Working Papers 05-19, Utrecht School of Economics.
  2. Lucian Bebchuk & Alma Cohen, 2004. "The Costs of Entrenched Boards," NBER Working Papers 10587, National Bureau of Economic Research, Inc.
  3. Juan Santalo & Carl Kock, 2005. "Corporate governance & the environment: bad discretion, good discretion, and environmental (...)," Working Papers Economia wp05-24, Instituto de Empresa, Area of Economic Environment.
  4. Robert Campbell & Chinmoy Ghosh & Milena Petrova & C. Sirmans, 2011. "Corporate Governance and Performance in the Market for Corporate Control: The Case of REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 42(4), pages 451-480, May.
  5. Juan Santalo, 2004. "Determinants of corporate anti-takeover provisions," Working Papers Economia wp04-28, Instituto de Empresa, Area of Economic Environment.

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