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Davidoff, Steven M. --- "Takeover Theory and the Law and Economics Movement" [2012] ELECD 467; in Hill, A. Claire; McDonnell, H. Brett (eds), "Research Handbook on the Economics of Corporate Law" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on the Economics of Corporate Law

Editor(s): Hill, A. Claire; McDonnell, H. Brett

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848449589

Section: Chapter 12

Section Title: Takeover Theory and the Law and Economics Movement

Author(s): Davidoff, Steven M.

Number of pages: 16

Extract:

12. Takeover theory and the law and economics
movement
Steven M. Davidoff



1. INTRODUCTION

The legendary Henry Manne can be credited with the first significant application of law and
economics scholarship to takeover theory. In his short ten-page article Mergers and the
Market for Corporate Control (Manne 1965), Manne set forth a theory of the market for
corporate control. The takeover market serves as a monitor for managers in public corporate
entities. If these managers fail to efficiently run the corporate enterprise or otherwise seek
their own private benefits to the detriment of the corporation, the takeover market serves as
a monitor. The value of the corporate enterprise will decline relative to shares in similarly
situated corporations. This will attract third parties to bid for control of the company, actors
who will otherwise operate it more efficiently and without such detriment. Though Manne
recognized that various takeover forms could have differing costs, Manne's article was an
implicit endorsement of an unconstrained takeover market, one where acquirers could freely
bid for companies. This would produce net social gains by allocating resources more effi-
ciently; it would also force managers to operate their companies more capably or otherwise
be replaced, itself a net social gain.
Manne's article was framed as primarily about the proper scope of antitrust enforcement
and the desirability of horizontal mergers, but its true influence was its implicit support for a
free market for corporate control as well as the assignment of a value on corporate ...