Do Antitakeover Defenses Decrease Shareholder Wealth? The Ex Post/Ex Ante Valuation Problem

Abstract

Over the past two decades, academics have generated a large empirical literature examining whether antitakeover defenses like poison pills or staggered board provisions decrease the wealth of shareholders in target corporations. Many studies, however, rely primarily on ex post analysis—they consider only how antitakeover defenses (ATDs) influence shareholder wealth after the corporation has been formed and, in some cases, long after the ATD was adopted. This Response argues that it may be impossible to fully understand the purpose or effects of ATDs without also considering their ex ante effects. In particular, ATDs may increase net target shareholder wealth ex ante if they encourage nonshareholder groups to make extracontractual investments in corporate team production. The Response reviews recent empirical evidence suggesting that shareholders do in fact perceive ATDs as beneficial ex ante. It also explores some implications for contemporary corporate scholarship and the attempt to measure the wealth effects of antitakeover rules.