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Buyouts in Large Companies

Author

Listed:
  • Benjamin E. Hermalin

    () (Haas School of Business)

  • Alan Schwartz

    () (Law School)

Abstract

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.

Suggested Citation

  • Benjamin E. Hermalin & Alan Schwartz, 1998. "Buyouts in Large Companies," Yale School of Management Working Papers ysm66, Yale School of Management.
  • Handle: RePEc:ysm:somwrk:ysm66
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    References listed on IDEAS

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    1. Murphy, Kevin J., 1985. "Corporate performance and managerial remuneration : An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 11-42, April.
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    4. Karl E. Case & Robert J. Shiller, 1987. "Prices of single-family homes since 1970: new indexes for four cities," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 45-56.
    5. Karl E. Case & Robert J. Shiller, 1990. "Forecasting Prices and Excess Returns in the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(3), pages 253-273.
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    7. John R. Knight & C. F. Sirmans & Geoffrey K. Turnbull, 1998. "List Price Information in Residential Appraisal and Underwriting," Journal of Real Estate Research, American Real Estate Society, vol. 15(1), pages 59-76.
    8. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
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    Citations

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    Cited by:

    1. Lucian Arye Bebchuk & Marcel Kahan, 1999. "The 'Lemons Effect' in Corporate Freeze-Outs," NBER Working Papers 6938, National Bureau of Economic Research, Inc.
    2. Feng Chen & Kenton K. Yee & Yong Keun Yoo, 2010. "Robustness of Judicial Decisions to Valuation-Method Innovation: An Exploratory Empirical Study," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(9-10), pages 1094-1114, November/.
    3. Atanasov, Vladimir & Black, Bernard & Ciccotello, Conrad & Gyoshev, Stanley, 2010. "How does law affect finance? An examination of equity tunneling in Bulgaria," Journal of Financial Economics, Elsevier, vol. 96(1), pages 155-173, April.
    4. Lucian Arye Bebchuk & Marcel Kahan, 2000. "Adverse Selection and Gains to Controllers in Corporate Freezeouts," NBER Chapters,in: Concentrated Corporate Ownership, pages 247-264 National Bureau of Economic Research, Inc.
    5. repec:dau:papers:123456789/4112 is not listed on IDEAS
    6. 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.

    More about this item

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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