Takeovers: The Controversy and the Evidence
Michael C. Jensen
Social Science Electronic Publishing (SSEP), Inc.; Harvard Business School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
WILLIAM G. KARNES SYMPOSIUM ON MERGERS, Charles M. Linke, ed., University of Illinois at Urbana-Champaign, Champaign, Illinois, pp. 27-39, 1986
The market far corporate control that has arisen in the last two decades is
generating large benefits for shareholders and for the economy as a whole. The corporate
control market generates these gains by loosening control over vast amounts of resources
and making it possible for those resources to move more quickly to their highest-valued
use. This occurs through: takeovers, both hostile and friendly; divestitures; spinoffs;
liquidations; leveraged buyouts; and going private transactions.
We are seeing a normal healthy market in operation, both on the takeover side and
on the divestiture side. The total benefits have been huge as reflected in gains of 535
billion to stockholders of acquiring and acquired firms in approximately the 50 largest
takeovers in the last four years. Since takeovers are investments taken under great
uncertainty, it is not surprising that, as in every investment activity, not all ventures are
successful. Those who criticize takeovers and mergers by pointing to those that
fail are missing the point. On average, takeovers create value through increased
efficiencies of various types.
Number of Pages in PDF File: 18
Keywords: Takeovers, mergers, raiders, corporate control, value creation, restructuring, spinoffs, leveraged buyouts, going private transactionsAccepted Paper Series
Date posted: November 11, 2002
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