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
Date posted: November 21, 2002