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
8. Conclusion
References
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