Self-Serving Fiduciaries? Board Discretion in Resisting Takeover Bids

70 Pages Posted: 23 Aug 2019 Last revised: 14 Jul 2022

See all articles by Nicholas F. Carline

Nicholas F. Carline

Department of Finance, Birmingham Business School, University of Birmingham

Sridhar Gogineni

The University of Tampa - John H. Sykes College of Business

Pradeep K. Yadav

University of Oklahoma Price College of Business

Date Written: July 6, 2022

Abstract


Unlike Britain and most E.U. countries, the board of a U.S. takeover target firm has virtually total discretion on whether or not to offer post-bid resistance. Do U.S. target firm boards function as bonafide fiduciaries for shareholders when they exercise this exceptional level of discretion? We empirically address this question using a research design that enables causal inferences alongside our accompanying conceptual framework. Exploiting well-documented relevant instrumental variables, we find a positive causal relationship from existing antitakeover provisions (ATPs) to post-bid resistance, and no causal relationship from bid premiums to post-bid resistance. Importantly, we are also able to unambiguously conclude that the target-board’s decision to resist is, on average, not motivated in the best interests of shareholders, but by entrenchment considerations. Our empirical results underscore the need to seriously revisit the issue of board discretion and director primacy in relation to takeover resistance in U.S. law and practice.

Keywords: takeover resistance; antitakeover provisions; bid premiums; good-faith bargaining; entrenchment

JEL Classification: G34; G38

Suggested Citation

Carline, Nicholas F. and Gogineni, Sridhar and Yadav, Pradeep K., Self-Serving Fiduciaries? Board Discretion in Resisting Takeover Bids (July 6, 2022). Available at SSRN: https://ssrn.com/abstract=3440672 or http://dx.doi.org/10.2139/ssrn.3440672

Nicholas F. Carline

Department of Finance, Birmingham Business School, University of Birmingham ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Sridhar Gogineni

The University of Tampa - John H. Sykes College of Business ( email )

401 W. Kennedy Blvd.
Tampa, FL 33606-1490
United States
8132533163 (Phone)

Pradeep K. Yadav (Contact Author)

University of Oklahoma Price College of Business ( email )

307 W.Brooks, Room 3270 Division of Finance
Norman, OK 73019
United States
4053255591 (Phone)
4053255491 (Fax)

HOME PAGE: http://www.ou.edu/price/finance/faculty/pradeep_yadav.html

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