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The Case Against Board Veto in Corporate Takeovers


  • Bebchuk, Lucian Arye


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.

Suggested Citation

  • Bebchuk, Lucian Arye, 2002. "The Case Against Board Veto in Corporate Takeovers," CEPR Discussion Papers 3445, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3445

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    References listed on IDEAS

    1. Dahlby, Bev & West, Douglas S, 1986. "Price Dispersion in an Automobile Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 418-438, April.
    2. Carlson, John A & McAfee, R Preston, 1983. "Discrete Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 480-493, June.
    3. Asplund, Marcus, 1998. "On the size distributions of firms and markets," SSE/EFI Working Paper Series in Economics and Finance 288, Stockholm School of Economics.
    4. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
    5. Franco Mariuzzo & Patrick Walsh & Ciara Whelan, 2003. "Firm Size and Market Power in Carbonated Soft Drinks," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 23(3), pages 283-299, December.
    6. Barron, John M. & Taylor, Beck A. & Umbeck, John R., 2004. "Number of sellers, average prices, and price dispersion," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1041-1066, November.
    7. Luigi Buzzacchi & Tommaso M. Valletti, 2004. "Firm Size Distribution in Small Samples," Bulletin of Economic Research, Wiley Blackwell, vol. 56(4), pages 301-309, October.
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    Cited by:

    1. Marc Goergen, 2005. "Corporate Governance Convergence: Evidence From Takeover Regulation Reforms in Europe," Oxford Review of Economic Policy, Oxford University Press, vol. 21(2), pages 243-268, Summer.
    2. Juan Santaló, 2004. "Determinants of corporate anti-takeover provisions," Working Papers Economia wp04-28, Instituto de Empresa, Area of Economic Environment.
    3. Bebchuk, Lucian A. & Cohen, Alma, 2005. "The costs of entrenched boards," Journal of Financial Economics, Elsevier, vol. 78(2), pages 409-433, November.
    4. Juan Santaló & 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.
    5. Wang, Ying & Lahr, Henry, 2017. "Takeover law to protect shareholders: Increasing efficiency or merely redistributing gains?," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 288-315.
    6. 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.
    7. Carline, Nicholas F. & Linn, Scott C. & Yadav, Pradeep K., 2014. "Corporate governance and the nature of takeover resistance," CFR Working Papers 14-01, University of Cologne, Centre for Financial Research (CFR).

    More about this item


    corporate control; corporate governance; mergers and acquisitions; takeover bids; takeover defences; takeovers; tender offers;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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