Self-Serving Fiduciaries? Board Discretion in Resisting Takeover Bids

Unlike Britain and most E.U. countries, the board of a U.S. takeover target firm has virtually total discretion on whether or not to offer post-bid resistance. Do U.S. target firm boards function as bonafide fiduciaries for shareholders when they exercise this exceptional level of discretion? We empirically address this question using a research design that enables causal inferences alongside our accompanying conceptual framework. Exploiting well-documented relevant instrumental variables, we find a positive causal relationship from existing antitakeover provisions (ATPs) to post-bid resistance, and no causal relationship from bid premiums to post-bid resistance. Importantly, we are also able to unambiguously conclude that the target-board’s decision to resist is, on average, not motivated in the best interests of shareholders, but by entrenchment considerations. Our empirical results underscore the need to seriously revisit the issue of board discretion and director primacy in relation to takeover resistance in U.S. law and practice.