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Why Higher Takeover Premia Protect Minority Shareholders


Mike Burkart


Stockholm School of Economics - Department of Finance; London School of Economics - Department of Finance & Financial Markets Group; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Denis Gromb


London Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Fausto Panunzi


Bocconi University - Department of Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Journal of Political Economy, Vol. 106 No. 1, February 1998

Abstract:     
Posttakeover moral hazard by the acquirer and free-riding by the target shareholders lead the former to acquire as few shares as necessary to gain control. As moral hazard is most severe under such low ownership concentration, inefficiencies arise in successful takeovers. Moreover, share supply is shown to be upward-sloping. Rules promoting ownership concentration limit both agency costs and the occurrence of takeovers. Furthermore, higher takeover premia induced by competition translate into higher ownership concentration and are thus beneficial. Finally, one share one vote and simple majority are generally not optimal, and socially optimal rules need not emerge through private contracting.

JEL Classification: G31, G32, G34

Accepted Paper Series


Date posted: April 11, 1998  

Suggested Citation

Burkart, Mike C., Gromb, Denis and Panunzi, Fausto, Why Higher Takeover Premia Protect Minority Shareholders. Journal of Political Economy, Vol. 106 No. 1, February 1998. Available at SSRN: http://ssrn.com/abstract=59914

Contact Information

Mike C. Burkart (Contact Author)
Stockholm School of Economics - Department of Finance ( email )
P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9678 (Phone)
+46 8 31 6422 (Fax)
HOME PAGE: http://www.hhs.se/Finance/People/ShowPerson.htm?personid=54
London School of Economics - Department of Finance & Financial Markets Group
Houghton Street
London WC2A 2AE
United Kingdom
HOME PAGE: http://www.lse.ac.uk/collections/finance/facultyAndStaff/profiles/mikeBurkart.htm
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
HOME PAGE: http://www.cepr.org/default_static.htm
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Denis Gromb
London Business School ( email )
Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
+44 20 7262 5050 x3545 (Phone)
+44 20 7724 3317 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Fausto Panunzi
Bocconi University - Department of Economics ( email )
Via Roentgen 1
20136 Milan
Italy
+39 02 5836 5327 (Phone)
+39 02 5836 5343 (Fax)
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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