Reviving the Market for Corporate Control
Author: Chad Leechor Date: 9/1/1999 (PDF, 200KB)
Changes in corporate control--through mergers, takeovers, acquisitions, divestitures, and the like--enhance shareholders' value. They allow the businesses to be transferred to the control of new owners who can put business assets to work more efficiently. In most countries, however, the market for corporate control is significantly restricted by anti-takeover laws and business practices used to entrench management, such as poison pills, heavy debt, pyramid schemes, and cross-holdings of equity. The key to overcoming these obstacles is to restructure incentives--by requiring business groups to disclose intercorporate ownership and banks to limit connected lending, by ensuring that bankruptcy law allows effective transfer of control, and by removing regulatory barriers to takeovers.