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Implicit contracts, takeovers and corporate governance: in the shadow of the city code

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  • Simon Deakin
  • Richard Hobbs
  • David Nash
  • Giles Slinger
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    Abstract

    This paper offers a qualitative, case-study based analysis of hostile takeover bids mounted in the UK in the mid-1990s under the regime of the City Code on Takeovers and Mergers. It is shown that during bids, directors of bid targets focus on the concerns of target shareholders to the exclusion of other stakeholder groups. A review of the case studies five years on find that, almost withouth exception, mergers led to large-scale job losses and asset disposals. However, almost none of the bids were considered by financial commentators, at this point, to have generated shareholder value for investors in that merged company. While there is therefore clear evidence that the Takeover Code is effective in protecting the interests of target shareholders, the implications of the Code for efficiency in corporate performance are much less certain.

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    File URL: http://www.cbr.cam.ac.uk/pdf/WP254.pdf
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    Bibliographic Info

    Paper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp254.

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    Date of creation: Dec 2002
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    Handle: RePEc:cbr:cbrwps:wp254

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    Web page: http://www.cbr.cam.ac.uk/

    Related research

    Keywords: hostile takeovers; stakeholding; implicit contracts; breach of trust;

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    References

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    1. Zingales, Luigi, 1998. "Corporate Governance," CEPR Discussion Papers 1806, C.E.P.R. Discussion Papers.
    2. Simon Deakin & Alan Hughes, 1999. "Economic Efficiency and the Proceduralisation of Company Law," ESRC Centre for Business Research - Working Papers wp133, ESRC Centre for Business Research.
    3. Andrei Shleifer & Lawrence H. Summers, 1988. "Breach of Trust in Hostile Takeovers," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 33-68 National Bureau of Economic Research, Inc.
    4. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
    5. Alan J. Auerbach, 1988. "Corporate Takeovers: Causes and Consequences," NBER Books, National Bureau of Economic Research, Inc, number auer88-1, May.
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    Cited by:
    1. Hilary Bates & Nick Oliver & Matthias Holweg & Michael Lewis, 2004. "Motor vehicle recalls: trends, patterns and emerging issues," ESRC Centre for Business Research - Working Papers wp295, ESRC Centre for Business Research.
    2. Christel Lane, 2003. "Changes in corporate governance of German corporations: convergence to the Anglo-American model?," ESRC Centre for Business Research - Working Papers wp259, ESRC Centre for Business Research.

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