Efficient and Inefficient Sales of Corporate Control / Lucian Arye Bebchuk.

By:

Bebchuk, Lucian Arye

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w4788.Publication details: Cambridge, Mass. National Bureau of Economic Research 1994.Description: 1 online resource: illustrations (black and white)Online resources:

Available additional physical forms:

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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.

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Working Paper	Biblioteca Digital	Colección NBER	nber w4788 (Browse shelf(Opens below))	Not For Loan

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Previous	nber w4785 Can State Taxes Redistribute Income? /	nber w4786 Effectiveness of Government Policy: An Experience from a National HealthCare System /	nber w4787 "Unemployment Insurance Benefits and Takeup Rates" /	nber w4788 Efficient and Inefficient Sales of Corporate Control /	nber w4789 The Financial Accelerator and the Flight to Quality /	nber w4790 Agricultural Interest Groups and the North American Free Trade Agreement /	nber w4791 The Ethnic and Racial Character of Self-Employment /	Next

July 1994.

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.