Efficient and Inefficient Sales of Corporate Control

52 Pages Posted: 24 Mar 2004

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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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.

Keywords: Corporate control, sale of control, control blocks, large shareholders, mergers and acquisitions, private benefit of control, minority shareholders

JEL Classification: G30, G34, K22

Suggested Citation

Bebchuk, Lucian A., Efficient and Inefficient Sales of Corporate Control. Harvard Law and Economics Discussion Paper No. 136, Available at SSRN: https://ssrn.com/abstract=520943

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

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HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/

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National Bureau of Economic Research (NBER) ( email )

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