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Mike Burkart

Swedish House of Finance

Fausto Panunzi

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

January 2006

ECGI - Finance Working Paper No. 118/2006

This paper reviews the existing literature on takeovers. Takeovers are a means to redeploy corporate assets more efficiently and to discipline incumbent management. However, an active market for corporate control also brings about potential inefficiencies. Takeovers may be undertaken for reasons other than value creation and the threat of a control change can induce inefficient actions on the part of target firm management and employees. The functioning of the market for corporate control is further impaired by incentive and coordination problems inherent in the takeover process. When the target firm is owned by many small shareholders, the free-rider problem prevents bidders firms from earning a profit on the tendered shares. We analyse implications of this problem as well as ways to overcome it. As widely held firms are atypical in many countries, we also discuss the impact that target ownership structure has on the incidence and efficiency of control transfers.

Number of Pages in PDF File: 40

Keywords: Takeovers, free-rider problem, efficiency of control transfers

JEL Classification: G34

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Date posted: February 21, 2006  

Suggested Citation

Burkart, Mike and Panunzi, Fausto, Takeovers (January 2006). ECGI - Finance Working Paper No. 118/2006. Available at SSRN: http://ssrn.com/abstract=884080 or http://dx.doi.org/10.2139/ssrn.884080

Contact Information

Mike C. Burkart (Contact Author)
Swedish House of Finance ( email )
Drottninggatan 98
111 60 Stockholm

Fausto Panunzi
Bocconi University - Department of Economics ( email )
Via Roentgen 1
20136 Milan
+39 02 5836 5327 (Phone)
+39 02 5836 5343 (Fax)
European Corporate Governance Institute (ECGI)
B-1050 Brussels
HOME PAGE: http://www.ecgi.org
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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References:  162
Citations:  25

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