The Life Cycle Effects of Corporate Takeover Defenses

We document that the relation between firm value and the use of takeover defenses is positive for young firms but becomes negative as firms age. This value reversal pattern reflects specific changes in the costs and benefits of takeover defenses as firms age and arises because defenses are sticky and rarely removed. Firms can attenuate the value reversal by removing defenses, but do so only when the defenses become very costly and adjustment costs are low. The value reversal explains previous mixed evidence about takeover defenses and implies that firm age proxies for takeover defenses’ heterogeneous impacts on firm value.

The Life Cycle Effects of Corporate Takeover Defenses

We document that the relation between firm value and the use of takeover defenses is positive for young firms but becomes negative as firms age. This value reversal pattern reflects specific changes in the costs and benefits of takeover defenses as firms age and arises because defenses are sticky and rarely removed. Firms can attenuate the value reversal by removing defenses, but do so only when the defenses become very costly and adjustment costs are low. The value reversal explains previous mixed evidence about takeover defenses and implies that firm age proxies for takeover defenses’ heterogeneous impacts on firm value.

Delaware Corporate Fiduciary Law: Searching for the Optimal Balance

This chapter examines Delaware’s corporate fiduciary law, focusing on how the courts have sought to balance concerns about opportunism or carelessness, unchecked by statute, against the direct and indirect costs of resorting to litigation against directors to limit such opportunism or carelessness. It first traces the evolution of Delaware case law before discussing the institutional setting and philosophical foundations of the Delaware corporate fiduciary law. It then considers two core principles that underpin Delaware’s regulation of the fiduciaries who govern corporations: fiduciaries should have the authority to be creative, take chances, and make mistakes so long as their interests are aligned with those who elect them; in cases where there might be a conflict of interest, there are accountability tools to ensure that the stockholder electorate is protected from unfair exploitation. The chapter also explores four contexts of judicial review of fiduciary conduct involving the board of directors: the “business judgment rule,” freeze-out mergers, mergers and acquisitions (takeover defenses, change of control mergers), and voting manipulation and entrenchment.