Identifying Corporate Governance Effects : The Case of Universal Demand Laws

An emerging line of research finds that firms incorporated in Universal Demand (UD) law adopting states experience an increase in the use of entrenchment provisions. Our investigation shows that the empirical link between UD laws and management entrenchment is influenced by a small number of firms adopting antitakeover provisions after substantial long-term drops in value. Using hand-collected data, we provide case-by-case evidence that the vast majority of changes in the use entrenchment provisions are in fact announced before the enactment of UD laws and cannot be causally attributed to UD laws. Our granular analysis has broad implications for law and finance research