Takeovers

40 Pages Posted: 21 Feb 2006

See all articles by Mike Burkart

Mike Burkart

Swedish House of Finance; London School of Economics and Political Science, Department of Finance; Finance Theory Group (FTG); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Fausto Panunzi

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

Multiple version iconThere are 2 versions of this paper

Date Written: January 2006

Abstract

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.

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

JEL Classification: G34

Suggested Citation

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

Mike C. Burkart (Contact Author)

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

London School of Economics and Political Science, Department of Finance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Finance Theory Group (FTG) ( email )

United States

Centre for Economic Policy Research (CEPR)

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United Kingdom

HOME PAGE: http://www.cepr.org/default_static.htm

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Fausto Panunzi

Bocconi University - Department of Economics ( email )

Via Roentgen 1
20136 Milan
Italy
+39 02 5836 5327 (Phone)
+39 02 5836 5343 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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