Federalism and Takeover Law: The Race to Protect Managers from Takeovers

Posted: 11 Aug 1999 Last revised: 5 May 2009

Lucian A. Bebchuk

Harvard Law School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)

Allen Ferrell

Harvard Law School; European Corporate Governance Institute (ECGI)

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Abstract

This paper analyzes certain important shortcomings of state competition in corporate law. In particular, we show that, 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.

JEL Classification: G30, G34, G38, H70

Suggested Citation

Bebchuk, Lucian A. and Ferrell, Allen, Federalism and Takeover Law: The Race to Protect Managers from Takeovers. Columbia Law Review, Vol. 99, No. 5, pp. 1168-1200, June 1999; Reprinted in Regulatory Competition and Economic Integration (D. Esty and D. Geradin, ed., Oxford University Press) pp. 68-94, 2001; Harvard Law and Economics Discussion Paper No. 257, June 1999. Available at SSRN: https://ssrn.com/abstract=169189

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)

HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)

Allen Ferrell

Harvard Law School ( email )

Griswold 303 1525 Massachusetts Avenue
Cambridge, MA 02138
United States
(617) 495-8961 (Phone)
(617) 495-1110 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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