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Buyouts in Large Companies

Listed author(s):
  • Benjamin E. Hermalin


    (Haas School of Business)

  • Alan Schwartz


    (Law School)

We consider legal rules that determine the price at which minority shareholders can be excluded from the corporate enterprise after a change in control. These rules affect investment after such a change as well as the probability of the change itself. Our principal results are that minority shareholders should be given the value that their interest would have had were no later investment made; and that this rule is best implemented, in large companies, by awarding the minority the pre-investment market value of their shares. The former aspect of our proposal is consistent with much current law but is rejected by many modern law reformers; the latter aspect of our proposal is novel.

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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm66.

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Date of creation: 18 May 1998
Handle: RePEc:ysm:somwrk:ysm66
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