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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.

Suggested Citation

  • Lucian Arye Bebchuk & Allen Ferrell, 2000. "Federalism and Takeover Law: The Race to Protect Managers from Takeovers," NBER Working Papers 7232, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:7232
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    Cited by:

    1. Sergey Stepanov, 2010. "Shareholder access to manager-biased courts and the monitoring/litigation trade-off," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 270-300.
    2. Rajeeva Sinha, 2004. "The role of hostile takeovers in corporate governance," Applied Financial Economics, Taylor & Francis Journals, vol. 14(18), pages 1291-1305.
    3. 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.
    4. Bebchuk, Lucian Arye & Cohen, Alma, 2003. "Firms' Decisions Where to Incorporate," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 383-425, October.
    5. Wolfgang Kerber & Stefan Grundmann, 2006. "An optional European contract law code: Advantages and disadvantages," European Journal of Law and Economics, Springer, vol. 21(3), pages 215-236, May.
    6. Sinha, Rajeeva, 2006. "Regulation: The market for corporate control and corporate governance," Global Finance Journal, Elsevier, vol. 16(3), pages 264-282, March.
    7. 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.
    8. Bebchuk, Lucian Arye & Cohen, Alma, 2002. "Firms' Decisions on Where to Incorporate," CEPR Discussion Papers 3514, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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