A Demand Side Theory of Anti-Takeover Defenses

45 Pages Posted: 31 Aug 2006

See all articles by Sharon Hannes

Sharon Hannes

Tel Aviv University - Buchmann Faculty of Law


This article develops a demand-and-supply framework to analyze the adoption of antitakeover defenses, and constructs a demand-side theory of antitakeover provisions ("ATPs"). The article views the decision to go public without ATPs as a decision to produce an unshielded target, and shows that the classic literature focused on the costs of producing such a target but barely accounted for demand-side considerations. The article argues that the more firms there are producing unshielded targets (and, therefore, the fewer there are firms adopting ATPs), the lower the price the market is willing to pay for the unshielded product. The reason for this is that not only do ATPs prevent takeovers, they also divert takeover activity to unshielded targets. The combination of existing supply-side explanations with the novel demandside theory works to explain the findings of recent empirical studies of ATPs at IPOstage firms that have puzzled the corporate finance and corporate law literature.

Suggested Citation

Hannes, Sharon, A Demand Side Theory of Anti-Takeover Defenses. Journal of Legal Studies, Vol. 35, pp. 475-524, 2006 . Available at SSRN: https://ssrn.com/abstract=926889

Sharon Hannes (Contact Author)

Tel Aviv University - Buchmann Faculty of Law ( email )

Ramat Aviv
Tel Aviv 69978, IL

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