MISQ Archivist Governance of Corporate Takeovers: Time for Say-on-Takeovers?

In this article, we study the potential for digital, online information and electronic voting to improve shareholder surplus by facilitating a new governance structure, owner-governance, which shifts control of the takeover decision from the board to shareholders. We compare analytical models of owner-governance to the current practice of delegatedgovernance in the context of increasing availability of online information which increases public informedness. Our analysis shows that shareholders of the target firm and the acquirer both prefer owner-governance to delegatedgovernance when informedness is sufficiently high. Interestingly, we find a region where owner-governance offers a higher probability of takeover but delegated-governance offers higher shareholder surplus. Under delegated-governance, the board endogenously sets an entrenchment level that is always greater than the entrenchment level preferred by the shareholders and increasing informedness reduces the probability of a takeover. Our results suggest that ownergovernance should be considered because of increasing informedness.