The Market for Corporate Control.The Theory and the Empirical Evidence

Seminar Paper , 2012 , 23 Pages , Grade: 1,3

Business economics - Investment and Finance

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.

Inhaltsverzeichnis (Table of Contents)

• Introduction
• The Market for Corporate Control – A definition
  • Corporate Control
  • The Market for Corporate Control
• Why are takeovers needed?
  • The failure of internal controls
  • Hostile takeovers as disciplining devices
• Taking over corporate control
  • Three takeover devices for the acquirer
    • Proxy Fight
    • Direct Purchase
    • Merger
    • Summary
  • Defense devices for the incumbents
• Corporate Control takeover motives
  • Managerial efficiency hypothesis / Creation of market power hypothesis
  • Hubris hypothesis and the egoistic, overpaying manager
• The welfare effects of corporate takeovers
  • Costs of a corporate takeover
• Discussion: Does the market for corporate control work?
  • Solving problems of takeovers

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This paper provides an introduction into the theory of the market for corporate control, its potential to improve corporate efficiency, and its welfare effects. The author examines the theory of the market for corporate control, explores its implications for corporate governance, and analyzes its impact on corporate performance and efficiency. The key themes covered in the text include:

• The definition and workings of the market for corporate control
• The reasons why corporate takeovers are necessary
• The different methods used to take over corporate control
• The motivations behind corporate takeovers
• The economic effects of corporate takeovers

Zusammenfassung der Kapitel (Chapter Summaries)

• The introduction to the paper outlines the significance of the market for corporate control, particularly in the context of the separation of ownership and control in publicly listed corporations. The author highlights the need for mechanisms to ensure managers act in the best interests of shareholders and maximize company value. This sets the stage for exploring the theory and empirical evidence of the market for corporate control.
• This chapter provides a clear definition of "corporate control" and explains how it relates to the market for corporate control. The author argues that control of a corporation's assets is a valuable asset that can be transferred through the market. The concept of corporate control is further defined, encompassing the rights to manage corporate resources, including the power to hire, fire, and compensate management.
• This section examines the reasons why takeovers are necessary. The author highlights the potential for internal controls to fail and the role of hostile takeovers as a disciplining device. The discussion focuses on the importance of external forces in ensuring corporate accountability and efficiency.
• This chapter delves into the methods used to take over corporate control. The author outlines three main devices used by acquirers: proxy fights, direct purchases, and mergers. The discussion also covers defense strategies employed by incumbents to protect their control.
• This section explores the motives behind corporate takeovers, discussing the managerial efficiency hypothesis and the hubris hypothesis. The author analyzes the potential for overpaying managers and the impact of managerial ego on takeover decisions.
• This chapter investigates the economic effects of corporate takeovers, highlighting both the costs and benefits associated with these transactions. The author examines the impact of takeovers on corporate value, efficiency, and the broader economy.
• The final section discusses the effectiveness of the market for corporate control, analyzing the complexities and imperfections of the model. The author considers potential solutions to address these shortcomings and improve the functioning of the market.

Schlüsselwörter (Keywords)

The main keywords and focus topics of the text are: corporate governance, market for corporate control, corporate takeovers, takeover motives, managerial efficiency, hubris hypothesis, welfare effects, corporate value, and corporate efficiency. The author explores these concepts within the framework of the market for corporate control, analyzing the mechanisms and implications of corporate takeovers in a dynamic economic context.

• College: Otto Beisheim School of Management Vallendar (Chair for Corporate Finance)
• Course: Seminar on Recent Developments in Corporate Governance
• Grade: 1,3
• Author: Marius Beckermann (Author)
• Publication Year: 2012
• Pages: 23
• Catalog Number: V286522
• ISBN (eBook): 9783656868187
• ISBN (Book): 9783656868194
• Language: English
• Tags: M&A, Merger, Mergers, Acquisitions, MCFF, Market for Corporate Control, Corporate Control, Corporate Finance, Corporate Governance, Finance