The market for corporate control, often referred to as the takeover market, is subject to scientific research since many years.
This paper starts with Manne‘s (1965) initial essay on the topic, introduce the theory of the market for corporate control. Therefore, it will begin with a definition of the terms “corporate control” and “the market for corporate control”. Following this, it will explain the possibilities of taking over the control of a corporation. Subsequently, it will argue why the market for corporate control is of great importance. Afterwards, a synopsis on the current empirical evidence of its efficiency follows. Finally, the author takes a look on the welfare effects of the market for corporate control, before concluding on its applicability and having a look on solutions to correct the imperfections of the model.
Table of Contents
- 1. Introduction
- 2. The Market for Corporate Control – A definition
- 2.1. Corporate Control
- 2.2. The Market for Corporate Control
- 3. Why are takeovers needed?
- 3.1. The failure of internal controls
- 3.2. Hostile takeovers as disciplining devices
- 4. Taking over corporate control
- 4.1. Three takeover devices for the acquirer
- 4.1.1. Proxy Fight
- 4.1.2. Direct Purchase
- 4.1.3. Merger
- 4.1.4. Summary
- 4.2. Defense devices for the incumbents
- 5. Corporate Control takeover motives
- 5.1. Managerial efficiency hypothesis / Creation of market power hypothesis
- 5.2. Hubris hypothesis and the egoistic, overpaying manager
- 6. The welfare effects of corporate takeovers
- 6.1. Costs of a corporate takeover
- 7. Discussion: Does the market for corporate control work?
- 7.1. Solving problems of takeovers
Objectives and Key Themes
This paper aims to introduce the theory of the market for corporate control, explaining how this market facilitates the transfer of control over a corporation's assets. It explores the reasons behind takeovers, the methods used, and the motivations of the involved parties. The paper also examines the empirical evidence regarding the efficiency of this market and its welfare effects.
- Definition and mechanisms of the market for corporate control
- Motivations behind corporate takeovers
- Methods of acquiring and defending corporate control
- Empirical evidence on the efficiency of the market for corporate control
- Welfare effects of corporate takeovers
Chapter Summaries
1. Introduction: This introductory chapter establishes the context of the paper by highlighting the separation of ownership and control in corporations and the resulting questions about efficiency. It introduces the market for corporate control as a mechanism to address these issues and briefly previews the paper's structure and approach, emphasizing the importance of efficient mechanisms to ensure corporate accountability, particularly in light of recent management fraud and costly investment examples.
2. The Market for Corporate Control - A definition: This chapter defines "corporate control" in both broad and narrow senses, explaining it as the influence on corporate behavior and the active control of corporate capital, respectively. It then defines the market for corporate control, outlining its fundamental proposition: that corporate control is a valuable asset whose value correlates positively with managerial efficiency and share price. The chapter establishes the premise that undervalued companies, due to inefficient management, become attractive takeover targets.
3. Why are takeovers needed?: This chapter explores the reasons for corporate takeovers. It argues that takeovers are necessary when internal controls fail to ensure efficient resource allocation and maximize company value. It presents hostile takeovers as a mechanism to discipline management and improve corporate performance, highlighting the role of takeovers in addressing managerial inefficiencies and correcting market failures.
4. Taking over corporate control: This chapter details the various methods used to acquire corporate control, including proxy fights, direct purchases, and mergers. It also describes defense mechanisms employed by incumbent management to resist takeover attempts. The chapter provides a comprehensive overview of the strategic tools and countermeasures involved in the acquisition and defense of corporate control.
5. Corporate Control takeover motives: This chapter analyzes the various motives driving corporate takeovers. It examines the managerial efficiency hypothesis and the creation of market power hypothesis, explaining how these factors influence takeover decisions. It further investigates the hubris hypothesis, focusing on the potential for overpaying managers driven by ego and overconfidence, highlighting the complexities of managerial motivations within the market for corporate control.
6. The welfare effects of corporate takeovers: This chapter examines the broader economic consequences of corporate takeovers, analyzing both the benefits and costs associated with these transactions. It explores the potential for increased efficiency and improved resource allocation, while also acknowledging the potential downsides, such as job losses and disruptions to business operations. The chapter delves into the complex interplay of positive and negative effects on stakeholders and the economy as a whole.
7. Discussion: Does the market for corporate control work?: This chapter critically assesses the effectiveness of the market for corporate control in achieving its intended goals. It addresses imperfections within the model and discusses potential solutions to rectify these shortcomings. The chapter provides a balanced perspective on the market's successes and failures, offering insight into its ongoing evolution and practical applications.
Keywords
Market for corporate control, takeovers, corporate governance, managerial efficiency, hostile takeovers, mergers and acquisitions, shareholder value, efficiency, welfare effects, corporate control, bidder, target firm.
Frequently Asked Questions: Market for Corporate Control
What is the main topic of this paper?
This paper provides a comprehensive overview of the market for corporate control. It examines the definition and mechanisms of this market, the motivations behind corporate takeovers, methods of acquiring and defending corporate control, empirical evidence on its efficiency, and its overall welfare effects.
What is the market for corporate control?
The market for corporate control is a mechanism through which the control of a corporation's assets is transferred. It operates on the principle that corporate control is a valuable asset whose value is positively correlated with managerial efficiency and share price. Undervalued companies, often due to inefficient management, become attractive targets for acquisition.
Why are corporate takeovers necessary?
Takeovers are often necessary when internal corporate controls fail to ensure efficient resource allocation and maximize company value. Hostile takeovers, in particular, can serve as a disciplinary device to improve corporate performance and address managerial inefficiencies.
What are the methods of acquiring corporate control?
Several methods exist for acquiring corporate control, including proxy fights (challenging incumbent management for shareholder votes), direct purchases of shares, and mergers. Each approach presents different strategic advantages and challenges.
How do companies defend against takeover attempts?
Incumbent management employs various defense mechanisms to resist takeover attempts. These strategies aim to protect the company's interests and maintain control.
What are the motivations behind corporate takeovers?
Several motives drive corporate takeovers. These include the managerial efficiency hypothesis (improving efficiency and share price), the creation of market power hypothesis (gaining market dominance), and the hubris hypothesis (overconfident managers overpaying for acquisitions).
What are the welfare effects of corporate takeovers?
Corporate takeovers have both positive and negative welfare effects. While they can lead to increased efficiency and improved resource allocation, they also carry potential costs such as job losses and disruptions to business operations. The overall effect is a complex interplay of these factors.
Does the market for corporate control work effectively?
The effectiveness of the market for corporate control is a subject of ongoing debate. While it can achieve its goals in many instances, imperfections exist within the system. The paper discusses potential solutions to address these shortcomings and offers a balanced perspective on its successes and failures.
What are the key terms related to this topic?
Key terms include: Market for corporate control, takeovers, corporate governance, managerial efficiency, hostile takeovers, mergers and acquisitions, shareholder value, efficiency, welfare effects, corporate control, bidder, target firm.
What are the chapter summaries included in the paper?
The paper provides detailed summaries for each chapter, outlining the key concepts and arguments presented in each section. These summaries cover the introduction, definition of the market for corporate control, reasons for takeovers, takeover methods, takeover motives, welfare effects, and a discussion on the market's overall effectiveness.
- Quote paper
- Marius Beckermann (Author), 2012, The Market for Corporate Control.The Theory and the Empirical Evidence, Munich, GRIN Verlag, https://www.grin.com/document/286522
