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The Case Against Board Veto in Corporate Takeovers


  • Lucian Arye Bebchuk


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.

Suggested Citation

  • Lucian Arye Bebchuk, 2002. "The Case Against Board Veto in Corporate Takeovers," NBER Working Papers 9078, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9078
    Note: CF LE

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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

    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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