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Takeovers: Folklore and Science

Michael C. Jensen

Social Science Electronic Publishing (SSEP), Inc.; Harvard Business School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Harvard Business Review, November-December, 1984

Shareholders, who are the most important constituency of the modern corporation because they bear its residual risk, benefit most directly from acquisitions because of the increase in the value of target company shares. Many current criticisms directed at takeover activity are wrong or based on faulty logic. Takeovers protect shareholders from mismanagement of a corporation as they allow alternative management teams to compete for the right to manage the corporation's assets. The takeover market provides a unique, powerful, and impersonal mechanism to accomplish the major restructuring and redeployment of assets continually required by changes in technology and consumer preferences.

Number of Pages in PDF File: 32

Keywords: corporate takeovers-criticism, raiders, effect of takeovers on shareholders, golden parachutes, residual risk, manager-shareholder conflicts, mergers, importance of shareholders

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Date posted: November 21, 2002  

Suggested Citation

Jensen, Michael C., Takeovers: Folklore and Science. Harvard Business Review, November-December, 1984. Available at SSRN: http://ssrn.com/abstract=350425 or http://dx.doi.org/10.2139/ssrn.350425

Contact Information

Michael C. Jensen (Contact Author)
Social Science Electronic Publishing (SSEP), Inc. ( email )
7858 Sanderling Road
Sarasota, FL 34242
United States
617-510-3363 (Phone)
305 675-3166 (Fax)
HOME PAGE: http://ssrn.com/author=9

Harvard Business School ( email )
Soldiers Field
Negotiations, Organizations & Markets
Boston, MA 02163
United States
617-510-3363 (Phone)
305-675-3166 (Fax)
HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=6484
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI) ( email )
B-1050 Brussels
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References:  28
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