Publication: Reviving the Market for Corporate Control

Thumbnail Image
Files in English
English PDF (205.79 KB)
152 downloads

English Text (20.21 KB)
32 downloads
Date
1999-09
ISSN
Published
1999-09
Author(s)
Leechor, Chad
Abstract
Changes in corporate control-through mergers, takeovers, acquisitions, divestitures, and the like-enhance shareholders' value. They allow the businesses to be transferred to the control of new owners who can put business assets to work more efficiently. In most countries, however, the market for corporate control is significantly restricted by anti-takeover laws and business practices used to entrench management, such as poison pills, heavy debt, pyramid schemes, and cross-holdings of equity. The key to overcoming these obstacles is to restructure incentives-by requiring business groups to disclose intercorporate ownership and banks to limit connected lending, by ensuring that bankruptcy law allows effective transfer of control, and by removing regulatory barriers to takeovers. Many studies of mergers, takeovers, acquisitions, and divestitures have confirmed that these control transactions generally maximize shareholders' value (Jensen and Ruback 1983). The gain in value is most visible in target firms' stock prices following announcements of takeover attempts or merger agreements. Even in the most advanced markets, where control transactions are common, stock prices increase 20 to 30 percent on average, depending on the type of transaction (Jarrell, Brickley, and Netter 1988). This gain represents one part of the increased business value that the acquirer is prepared to share with the target firm.
Citation
Leechor, Chad. 1999. Reviving the Market for Corporate Control. Viewpoint. © World Bank, Washington, DC. http://openknowledge.worldbank.org/entities/publication/0976e27e-f929-51cd-b30c-99ad451a76c0 License: CC BY 3.0 IGO.
Report Series
Report Series
Other publications in this report series
  • Publication
    Investment Climate in Africa
    (World Bank, Washington, DC, 2015-07-01) Bridgman, David ; Adamali, Aref
    The World Bank Group has been working on investment climate reform in Sub-Saharan Africa for nearly a decade, a period characterized by dramatic economic growth on the continent. Establishing links between such reform interventions and economic growth, however, is a complex problem. Although this note finds some connection between investment climate reform and economic growth, establishing more concrete evidence of causation will require greater focus at the country level, as well as on small and medium enterprises. This is where investment climate interventions generate change.
  • Publication
    Export Competitiveness: Why Domestic Market Competition Matters
    (World Bank, Washington, DC, 2015-06) Goodwin, Tanja ; Pierola, Martha Denisse
    This review of the empirical literature shows that industries with more intense domestic competition will export more. Competition law enforcement can be traced to export performance and is complementary to trade reforms. Pro-competition market regulation that reduces restrictions and promotes competition, where it is viable, is an important determinant for trade. The elimination of barriers to entry and rivalry, and a level playing field in upstream sectors contributes to export competitiveness in downstream manufacturing sectors. In some sectors, effective competition policy can directly lower trade costs.
  • Publication
    Primary Care for the Poor: The Potential of Micro-Health Markets to Improve Care
    ( 2015-01) Coarasa, Jorge ; Das, Jishnu
    Much of the primary curative care provided to the poor by the private sector occurs not at large hospitals but at small, single-person clinics. While such micro-health providers increase access, questions persist about quality. Some have argued that the micro-health sector needs to be better regulated. This note cites recent studies in arguing that the micro-health sector needs to be better understood. A more evidence based approach may enable the World Bank Group to better target investments and interventions and help these providers fulfill an important role serving the poor. The following recommendations are made at the conclusion of this paper: (1) Effort, rather than hardware or training, may count the most. (2) Scaling up interventions to improve quality requires understanding and addressing market failures. (3) Changing the way impacts are measured will lead to smarter investments.
  • Publication
    Small Business Tax Regimes
    (World Bank, Washington, DC, 2016-02) Coolidge, Jacqueline ; Yilmaz, Fatih
    Simplified tax regimes for micro and small enterprises in developing countries are intended to facilitate voluntary tax compliance. However, survey evidence suggests that small business taxation based on simplified bookkeeping or turnover is sometimes perceived as too complex for microenterprises in countries with high illiteracy levels. Very simple fixed tax regimes not requiring any books or records tend to be overly popular but prone to abuse. System reforms will require more precise tailoring of the simplified regimes to their target beneficiaries, coupled with strong compliance management to detect and deter abuse. The overall objective of simplified taxation for micro and small enterprises (MSEs) in developing countries is generally to facilitate voluntary tax compliance and remove obstacles in moving toward business formalization and growth.
  • Publication
    Competition and Poverty
    (World Bank, Washington, DC, 2016-04) Begazo, Tania ; Nyman, Sara
    A literature review shows competition policy reforms can deliver benefits for the poorest households and improve income distribution. A lack of competition in food markets hurts the poorest households the most. Competition in input markets and between buyers helps farmers and small businesses. And more competitive markets bolster job growth over the longer term. More research is needed, however, to better understand the impact of competition reforms and antitrust enforcement on poverty and shared prosperity.
Journal
Journal Volume
Journal Issue
Collections
Citations