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The Drivers of Market Efficiency in Revlon Transactions

Guhan Subramanian

Harvard Business School

March 18, 2003

Journal of Corporation Law, Forthcoming

Drawing from practitioner interviews and Gilson & Kraakman's "mechanisms" of market efficiency, I present the argument that the Delaware Supreme Court's decision in Revlon v. MacAndrews & Forbes, Inc. would reduce incentives to search and therefore would reduce overall efficiency in the market for corporate control. I compare this theoretical prediction to the evidence from the past seventeen years of takeover activity, and find no evidence that deal activity for Revlon transactions has been reduced. I argue that three drivers of market efficiency might explain this finding: small net first-bidder costs, preemptive bidding, and heterogeneous buyers. I present some evidence that the market for corporate control was primarily a private-value game in the 1990s, implying that buyer heterogeneity was an important driver of market efficiency. This paper is part of a Symposium commenting on Gilson & Kraakman, The Mechanisms of Market Efficiency, 70 Va. L. Rev. 549 (1984).

Number of Pages in PDF File: 27

Keywords: Takeovers, lockups, mergers and acquisitions, Revlon, market efficiency

JEL Classification: G30, G34, G38, K22

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Date posted: March 21, 2003  

Suggested Citation

Subramanian, Guhan, The Drivers of Market Efficiency in Revlon Transactions (March 18, 2003). Journal of Corporation Law, Forthcoming. Available at SSRN: https://ssrn.com/abstract=389600 or http://dx.doi.org/10.2139/ssrn.389600

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Guhan Subramanian (Contact Author)
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-9784 (Phone)
617-496-7379 (Fax)

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