Working Paper: NBER ID: w8633
Authors: Lucian Bebchuk; Oliver Hart
Abstract: This paper evaluates the primary mechanisms for changing management or obtaining control in publicly traded corporations with dispersed ownership. Specifically, we analyze and compare three mechanisms: (1) proxy fights (voting only); (2) takeover bids (buying shares only); and (3) a combination of proxy fights and takeover bids in which shareholders vote on acquisition offers. We first show how proxy fights unaccompanied by an acquisition offer suffer from substantial shortcomings that limit the use of such contests in practice. We then argue that combining voting with acquisition offers is superior not only to proxy fights alone but also to takeover bids alone. Finally, we show that, when acquisition offers are in the form of cash or the acquirer's existing securities, voting shareholders can infer from the pre-vote market trading which outcome would be best in light of all the available public information. Our analysis has implications for the ongoing debates in the US over poison pills and in Europe over the new EEC directive on takeovers.
Keywords: No keywords provided
JEL Codes: G30; G34; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| proxy fights (G34) | limited use in practice (Y80) |
| private benefits (J32) | shareholder voting behavior (G34) |
| acquisition offer (G34) | shareholder voting behavior (G34) |
| combining tender offers with voting (G34) | decision-making by shareholders (G34) |
| market prices (P22) | shareholder voting decisions (G34) |