The Law and Finance of Anti-Takeover Statutes

Lawyers and financial economists have fundamentally different views of anti-takeover statutes. While corporate lawyers and academics generally dismiss these statutes as irrelevant, economists study them empirically and find that they - and hence the threat of a takeover - affect firm and managerial behavior. This article seeks to bridge the divide between the law and the finance approach to anti-takeover statutes. We first explain why these statutes, as used by financial economists, are not a proper metric of the takeover threat facing a firm. We then review three empirical studies published in leading finance journals. For each study, we show that the results are affected by omitted variables, large scale coding errors, or improper specifications. When corrected for these problems, the associated between anti-takeover statutes and the hypothesized effect disappeared. Our paper calls into doubt most of the understanding of the effect of takeover threat, which is based to a large extent on studies of anti-takeover statutes.