Over the last fifteen years, numerous finance articles have examined the effect of antitakeover statutes (ATSs) on firm and managerial behavior. In this Article, we evaluate these studies from a theoretical-legal and an empirical-finance perspective. To assess the impact of an antitakeover statute from a theoretical perspective, one has to evaluate how the statute affects the ability of a firm to defend itself in light of the other defenses already available to the firm. The finance studies, by failing to take account of how antitakeover defenses interact and how they function in practice, are based on fundamentally flawed assumptions about the additional protection afforded by antitakeover statutes. In particular, because most firms have access to other, more powerful takeover defenses—specifically, poison pills—standard antitakeover statutes do not materially increase a company’s ability to resist a hostile takeover bid. From the empirical side, the finance studies omit important control variables, use improper specifications, contain errors in coding the year in which states adopted statutes and the companies such statutes cover, and suffer from selection bias and endogeneity. These problems render the empirical results derived by these studies unreliable. Indeed, this Article replicates several of these empirical studies in order to show that their results do not withstand closer scrutiny.
This Article has important implications for the debate over whether an increased threat of takeovers acts as a disciplining device or induces short-termism. The finance studies criticized herein have been taken as supplying the single best source of unconfounded empirical evidence in this debate. But if, as this Article will show, these studies suffer from serious flaws, much of the perceived empirical knowledge about the real economic effects of a change in the threat of takeovers has to be reassessed. In the end, decades of empirical studies have yielded little empirical knowledge.