I examine the use of governance provisions by U.S. corporations and their impact on shareholder wealth during the period 1990 to 2002. Using voting power theory to model bargaining positions across shareholder groups, I test the relevance of managerial benefits from control, deferred compensation, rational myopia, takeover deterrence, and bargaining power to the likelihood of having specific defenses in place. After controlling for firm-level and industry effects, I find that substantial bargaining positions by pressure resistant institutions, like pension funds, significantly reduce the likelihood of adopting provisions that undermine the constitutional rights of shareholders and discourage their active participation in internal governance. Consistent with the managerial entrenchment hypothesis, I find that internal provisions are mainly used in firms where managerial entrenchment is of greater concern. However, I also find that classified boards are value increasing when adopted in asymmetric information environments. In contrast, I find that external provisions, such as poison pills, are primarily adopted to either deter takeovers or for bargaining purposes. It is only when they are used in combination that entrenchment motives become dominant. Contrary to the "Governance Index" literature, this study concludes that antitakeover provisions are not homogenous, not independent, and have quite disparate implications for shareholders.
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