Why Firms Adopt Antitakeover Arrangements

31 Pages Posted: 4 Jan 2004 Last revised: 12 Sep 2009

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

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Date Written: December 2003

Abstract

Firms going public have increasingly been incorporating antitakeover provisions in their IPO charters, while shareholders of existing companies have increasingly been voting in opposition to such charter provisions. This paper identifies possible explanations for this empirical pattern. Specifically, I analyze explanations based on (1) the role of antitakeover arrangements in encouraging founders to break up their initial control blocks, (2) efficient private benefits of control, (3) agency problems among pre-IPO shareholders, (4) agency problems between pre-IPO shareholders and their IPO lawyers, (5) asymmetric information between founders and public investors about the firm's future growth prospects, and (6) bounded attention and imperfect pricing at the IPO stage.

Suggested Citation

Bebchuk, Lucian A., Why Firms Adopt Antitakeover Arrangements (December 2003). NBER Working Paper No. w10190, Available at SSRN: https://ssrn.com/abstract=483121

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