Reviving the Market for Corporate Control
Changes in corporate control-through mergers, takeovers, acquisitions, divestitures, and the like-enhance shareholders' value. They allow the businesses to be transferred to the control of new owners who can put business assets to work more ef...
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| Format: | Viewpoint |
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/1999/09/2531452/reviving-market-corporate-control http://hdl.handle.net/10986/11463 |
| Summary: | Changes in corporate control-through
mergers, takeovers, acquisitions, divestitures, and the
like-enhance shareholders' value. They allow the
businesses to be transferred to the control of new owners
who can put business assets to work more efficiently. In
most countries, however, the market for corporate control is
significantly restricted by anti-takeover laws and business
practices used to entrench management, such as poison pills,
heavy debt, pyramid schemes, and cross-holdings of equity.
The key to overcoming these obstacles is to restructure
incentives-by requiring business groups to disclose
intercorporate ownership and banks to limit connected
lending, by ensuring that bankruptcy law allows effective
transfer of control, and by removing regulatory barriers to
takeovers. Many studies of mergers, takeovers, acquisitions,
and divestitures have confirmed that these control
transactions generally maximize shareholders' value
(Jensen and Ruback 1983). The gain in value is most visible
in target firms' stock prices following announcements
of takeover attempts or merger agreements. Even in the most
advanced markets, where control transactions are common,
stock prices increase 20 to 30 percent on average, depending
on the type of transaction (Jarrell, Brickley, and Netter
1988). This gain represents one part of the increased
business value that the acquirer is prepared to share with
the target firm. |
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