Efficient and Inefficient Sales of Corporate Control

39 Pages Posted: 17 Aug 2010 Last revised: 18 Aug 2010

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

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Date Written: July 1994

Abstract

This paper develops a framework for analyzing transactions that transfer a company's controlling block from an existing controller to a new controller. This framework is used to compare the market rule, which is followed in the United States, with the equal opportunity rule, which prevails in some other countries. The market rule is superior to the equal opportunity rule in facilitating efficient transfers of control but inferior to it in discouraging inefficient transfers. Conditions under which one of the two rules is overall superior are identified; for example, the market rule is superior if existing and new controllers draw their characteristics from the same distributions. Finally, the rules' effects on surplus division are analyzed and this examination reveals a rationale for mandatory rules.

Suggested Citation

Bebchuk, Lucian A., Efficient and Inefficient Sales of Corporate Control (July 1994). NBER Working Paper No. w4788, Available at SSRN: https://ssrn.com/abstract=1660277

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