An emerging line of research based on Appel (2019) finds that firms incorporated in Universal Demand (UD) law adopting states experience an increase in the use of entrenchment provisions. Our granular investigation shows that the empirical link between UD laws and management entrenchment is not supported by the evidence. We instead find that the results in Appel (2019) are driven by a small number of firms adopting poison pill and golden parachute provisions after substantial long-term drops in market value. Using hand-collected data, we additionally find that the vast majority of changes in the use entrenchment provisions among affected firms were in fact announced before the enactment of UD laws. The evidence calls into question the existence of a cause-and-effect link between UD laws and management entrenchment.
Universal Demand Laws Did Not Increase Management Entrenchment Available to Purchase
We thank Ian Appel, Bernie Black, Dain Donelson, Jill Fisch, Robert Bartlett, Cathy Hwang, Holger Spamann, Irene Yi (discussant), seminar participants at U.C. Berkeley, the 2021 Annual Meeting of the American Law & Economics Association, and the 2022 Ackerman Conference of the European Corporate Governance Institute at Bar Ilan University for feedback. We also thank Roberta Romano and Sarath Sanga for state of incorporation data, and James Hicks for research assistance. We gratefully acknowledge support from the Center for Financial Reporting and Management at Berkeley Haas and the Berkeley Center for Law and Business. The views expressed here are those of the authors and not necessarily those of Dimensional Fund Advisors, its employees, or directors.
Ahn BH, Patatoukas PN, Solomon SD (2025), "Universal Demand Laws Did Not Increase Management Entrenchment". Critical Finance Review, Vol. 14 No. 4 pp. 475–500, doi: https://doi.org/10.1561/104.00000166
Download citation file:
Sign in
ICE Member Sign In
Log inPurchased this content as a guest? Enter your email address to restore access.
