The Market for Corporate Control

The Market for Corporate Control

By
David F. Larcker, Brian Tayan
CGRI Quick Guide Series.
2015

The board of directors might decide it is in the best interest of shareholders to sell the corporation to new owners. In theory, a change in control only makes sense when the value of the firm to new owners, minus transaction costs, is greater than the value of the firm to current owners.

This Quick Guide examines the market for corporate control. It answers the questions:

  • Why do companies merge?
  • Do mergers improve performance?
  • Who gets the value in a merger?
  • How do companies protect themselves from hostile bids?
  • Do these protections help shareholders?