Takeovers and the Business Judgment Rule

Abstract:     
Thus far we have seen that the corporate takeover phenomenon of the 1980s was one with roots deep in the history of U.S. managerial capitalism, and that the scientific evidence on takeovers shows clearly that they have generated enormous efficiency gains by forcing the restructuring of many firms in mature and declining industries - firms which were often awash in (and systematically wasting) corporate free cash flow. In this chapter we will examine the legal regulatory environment that shaped the market for corporate control during the 1980s, and its legacy for today's control market. I begin below with a discussion of the legal doctrine underlying key 1980s takeover-related rulings of the Delaware courts and its implications for the corporate control market and the corporate form of organization.

Keywords: corporate takeovers, restructuring, free cash flow, market for corporate control, legal doctrine, Delaware courts, Agency Model, poison pills, tender offers

JEL Classifications: D2, E6, G3, G34, G38, K00

Accepted Paper Series