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The Foundations of Freezeout Laws in Takeovers

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Author Info

  • Yakov Amihud

    (Department of Finance, Stern School of Business, New York University)

  • Marcel Kahan

    (Kahan is from the School of Law, New York University)

  • Rangarajan K. Sundaram

    (Department of Finance, Stern School of Business, New York University)

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    Abstract

    We provide an economic basis for permitting freezeouts of nontendering shareholders following successful takeovers. We describe a specific freezeout mechanism based on easily verifiable information that induces desirable efficiency and welfare properties in models of both corporations with widely dispersed shareholdings and corporations with large pivotal shareholders. The mechanism dominates previous proposals along some important dimensions. We also examine takeover premia that arise in the presence of competition among raiders. Our mechanism is closely related to the practice of takeover law in the United States; thus, our analysis may be thought of as analyzing the economic foundations of current regulations. Copyright 2004 by The American Finance Association.

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    Bibliographic Info

    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 59 (2004)
    Issue (Month): 3 (06)
    Pages: 1325-1344

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    Handle: RePEc:bla:jfinan:v:59:y:2004:i:3:p:1325-1344

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    Cited by:
    1. Bo Becker & Jens Josephson, 2013. "Insolvency Resolution and the Missing High Yield Bond Markets," NBER Working Papers 19415, National Bureau of Economic Research, Inc.
    2. Christian At & Sylvain Béal & Pierre-Henri Morand, 2013. "Freezeout, Compensation Rules and Voting Equilibria," Working Papers 2013-04, CRESE.
    3. Bøhren, Øyvind & Krosvik, Nils Erik, 2013. "The economics of minority freezeouts: Evidence from the courtroom," International Review of Law and Economics, Elsevier, vol. 36(C), pages 48-58.
    4. Maug, Ernst, 2006. "Efficiency and fairness in minority freezeouts: Takeovers, overbidding, and the freeze-in problem," International Review of Law and Economics, Elsevier, vol. 26(3), pages 355-379, September.

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