Working Paper: NBER ID: w4788
Authors: Lucian Arye Bebchuk
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; market rule; equal opportunity rule; efficiency; shareholder rights
JEL Codes: K22; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Market Rule (MR) (D40) | efficiency of control transfers (D61) |
| Market Rule (MR) (D40) | inefficient transfers (F16) |
| Equal Opportunity Rule (EOR) (J70) | prevention of inefficient transfers (F16) |
| Equal Opportunity Rule (EOR) (J70) | efficiency of control transfers (D61) |
| Market Rule (MR) (D40) | shareholder welfare (G34) |
| Equal Opportunity Rule (EOR) (J70) | shareholder welfare (G34) |