1 Introduction</h5> Takeover defenses remain one of the most controversial aspects of corporate governance. Conventional wisdom holds that takeover defenses serve primarily to entrench managers at shareholders’ expense. 1 1 For examples, see Easterbrook and Fischel (1991) , Bebchuk, Coates, and Subramanian (2002) , and Gompers, Ishii, and Metrick (2003) . Reflecting this view, shareholder advisory groups frequently advise their clients to vote against the adoption of new defenses and for the repeal of existing defenses. 2 2 See, for example, “The Shareholder Rights Project Report for the 2012 and 2013 Proxy Seasons,” Harvard Law School, October 20, 2013, available at http://srp.law.harvard.edu/releases/2012-13-Annual-Report.pdf ; and “Institutional Shareholder Services Releases 2014 Proxy Voting Policies,” November 21, 2013, available at http://www.issgovernance.com/iss-releases-2014-proxy-voting-policies/ . Researchers frequently use the Gompers, Ishii, and Metrick (2003) G-index and the Bebchuk, Cohen, and Ferrell (2009) E-index as measures of governance quality, with higher numbers of takeover defenses indicating poorer governance (see, e.g., Masulis, Wang, and Xie, 2007; Giroud and Mueller, 2011; and Duchin and Sosyura, 2013 ).</P>A contrasting view is that takeover defenses benefit shareholders. DeAngelo and Rice (1983) and Stulz (1988) argue that defenses can increase managers’ ability to extract higher premiums in the event of
Journal of Financial Economics – Elsevier
Published: Aug 1, 2015
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