IDEAS home Printed from https://ideas.repec.org/a/bpj/rlecon/v15y2019i1p17n4.html
   My bibliography  Save this article

Efficient and Inefficient Sales of Corporate Control: The Case of Going Private

Author

Listed:
  • Ofir Moran

    (Radzyner Law School, The Interdisciplinary Center (IDC) Herzliya, Herzliya, Israel)

Abstract

I analyze the legal rules governing the sale-of-corporate-control in the case of going private transactions and examine whether a controlling shareholder must share the premium associated with sale-of-control. I rely on the framework developed in (Bebchuk, L.A. 1994. “Efficient and Inefficient Sales of Corporate Control,” 109 Quarterly Journal of Economics 957–993) regarding these transactions under the adjusted market rule (AMR) enabling different rights for the controlling and minority shareholders, and under the adjusted equal opportunity rule (AEOR) providing equal rights to the minorities and controller. My main findings are that both rules prevent inefficient transfers, since under both the new controller fully internalizes the externality imposed by extracting private benefits of control. However, the AMR is superior in facilitating efficient transfers. This is because the AEOR can prevent efficient transfers, due to the higher price demanded from the buyer in order to compensate both controller and minorities. In consequence, overall, the AMR dominates the AEOR for transactions in which a company is taken private.

Suggested Citation

  • Ofir Moran, 2019. "Efficient and Inefficient Sales of Corporate Control: The Case of Going Private," Review of Law & Economics, De Gruyter, vol. 15(1), pages 1-17, March.
    • Handle: RePEc:bpj:rlecon:v:15:y:2019:i:1:p:17:n:4
    DOI: 10.1515/rle-2017-0015
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/rle-2017-0015
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/rle-2017-0015?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Philippe Aghion & Patrick Bolton, 1992. "An Incomplete Contracts Approach to Financial Contracting," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(3), pages 473-494.
    2. Leuz, Christian, 2007. "Was the Sarbanes-Oxley Act of 2002 really this costly? A discussion of evidence from event returns and going-private decisions," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 146-165, September.
    3. Ronen Barak & Beni Lauterbach, 2011. "Estimating the private benefits of control from partial control transfers: methodology and evidence," International Journal of Corporate Governance, Inderscience Enterprises Ltd, vol. 2(3/4), pages 183-200.
    4. repec:bla:jfinan:v:59:y:2004:i:2:p:537-600 is not listed on IDEAS
    5. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
    6. Bebchuk, Lucian Arye, 1989. "Takeover Bids below the Expected Value of Minority Shares," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(2), pages 171-184, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    2. Renneboog, L.D.R. & Simons, T., 2005. "Public-to-Private Transactions : LBOs, MBOs, MBIs and IBOs," Other publications TiSEM 3b76799c-591c-4d22-b126-a, Tilburg University, School of Economics and Management.
    3. Philippe Aghion & Oliver D. Hart & John Moore, 1994. "The Economics of Bankruptcy Reform," NBER Chapters, in: The Transition in Eastern Europe, Volume 2, Restructuring, pages 215-244, National Bureau of Economic Research, Inc.
    4. Goergen, Marc & Manjon, Miguel C. & Renneboog, Luc, 2008. "Recent developments in German corporate governance," International Review of Law and Economics, Elsevier, vol. 28(3), pages 175-193, September.
    5. Matthias Kiefer & Edward Jones & Andrew Adams, 2016. "Principals, Agents and Incomplete Contracts: Are Surrender of Control and Renegotiation the Solution?," CFI Discussion Papers 1603, Centre for Finance and Investment, Heriot Watt University.
    6. Becht, Marco & Bolton, Patrick & Roell, Ailsa, 2003. "Corporate governance and control," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 1, pages 1-109, Elsevier.
    7. Cosset, Jean-Claude & Meknassi, Siham, 2013. "Does cross-listing in the US foster mergers and acquisitions and increase target shareholder wealth?," Journal of Multinational Financial Management, Elsevier, vol. 23(1), pages 54-73.
    8. Fluck, Zsuzsanna, 1999. "The Dynamics of the Management-Shareholder Conflict," The Review of Financial Studies, Society for Financial Studies, vol. 12(2), pages 379-404.
    9. Arping, Stefan, 2005. "Protective interests and creative destruction," Journal of Financial Intermediation, Elsevier, vol. 14(4), pages 401-431, October.
    10. Zhang, Xinde & Zhou, Simiao, 2018. "Bond covenants and institutional blockholding," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 136-152.
    11. Dietrich, Diemo & Jindra, Björn, 2010. "Corporate governance in the multinational enterprise: A financial contracting perspective," International Business Review, Elsevier, vol. 19(5), pages 446-456, October.
    12. Luigi Zingales, 2000. "In Search of New Foundations," Journal of Finance, American Finance Association, vol. 55(4), pages 1623-1653, August.
    13. Holmstrom, Bengt & Nalebuff, Barry, 1992. "To the Raider Goes the Surplus? A Reexamination of the Free-Rider Problem," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 37-62, Spring.
    14. Oliver Hart, 2017. "Incomplete Contracts and Control," American Economic Review, American Economic Association, vol. 107(7), pages 1731-1752, July.
    15. Pérez-Soba, Inés & Martínez-Cañete, Ana R. & Márquez–de-la-Cruz, Elena, 2021. "Private benefits from control block trades in the Spanish stock exchange," The North American Journal of Economics and Finance, Elsevier, vol. 56(C).
    16. Renée Birgit Adams & Francesca Cornelli & Leonardo Felli, 2012. "How to Sell a (Bankrupt) Company," International Review of Finance, International Review of Finance Ltd., vol. 12(2), pages 197-226, June.
    17. Francesca Cornelli & David D. Li, 2002. "Risk Arbitrage in Takeovers," The Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 837-868.
    18. Arturo Bris & Ivo Welch, 2005. "The Optimal Concentration of Creditors," Journal of Finance, American Finance Association, vol. 60(5), pages 2193-2212, October.
    19. Hellwig, Martin, 1998. "On the economics and politics of corporate finance and corporate control," Papers 98-43, Sonderforschungsbreich 504.
    20. Crespi, R. & Renneboog, L.D.R., 2003. "Corporate monitoring by shareholder coalitions in the UK," Other publications TiSEM f7b7fa79-dcc7-4499-8281-e, Tilburg University, School of Economics and Management.

    More about this item

    Keywords

    sale of control; control premium; going private; market rule; equal opportunity rule;
    All these keywords.

    JEL classification:

    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:rlecon:v:15:y:2019:i:1:p:17:n:4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.