The stock market, the market for corporate control and the theory of the firm: legal and economic perspectives and implications for public policy

Deakin, Simon and Singh, Ajit (2008): The stock market, the market for corporate control and the theory of the firm: legal and economic perspectives and implications for public policy. Published in: Bjuggren, P., and Mueller, D.C., (eds.) The Modern Firm, Corporate Governance and Investment, Elgar Publications (1 January 2009): pp. 185-222.

Abstract

Abstract

It is argued here that – contrary to current conventional wisdom – an active market for corporate control is not an essential ingredient of either company law reform or financial and economic development. The absence of such a market in coordinated market systems during their modern economic development was not an evolutionary deficit, but an effective and positive institutional arrangement. The economic and social costs associated with restructuring driven by hostile takeover bids, which are increasingly seen as prohibitive in the liberal market economies, would most likely harm the prospects for growth in developing and transition systems.

• Item Type: MPRA Paper
• Language: English
• Keywords: stock market, company law reform, economic development, institutional arrangement, developing and transition systems
• Subjects: D - Microeconomics > D0 - General; F - International Economics > F0 - General; G - Financial Economics > G1 - General Financial Markets; K - Law and Economics > K0 - General; K - Law and Economics > K2 - Regulation and Business Law

References

References

Alcouffe, A. and Alcouffe, C. (1997) ‘Control and executive compensation in large French companies’ Journal of Law and Society, vol. 24, Issue 1, pp. 85-103

Berle, A. (1932) ‘For whom corporate managers are trustees: a note’ Harvard Law Review, Vol. 45, No. 8 (June 1932), pp. 1365-1372

Berle, A. (1962) ‘Modern functions of the corporate system’ Columbia Law Review, Vol. 64, No. 7 (November 1964), pp. 1371-1376

Black, B. and R. Gilson (1998) ‘Venture capital and the structure of capital markets: banks versus stock markets’, Journal of Financial Economics, vol.47, pp. 243-277

Blair, M. (1996) Wealth Creation and Wealth Sharing: A Colloquium on Corporate Governance and Investments in Human Capital (Washington, DC: Brookings Institution)

Blair, M. and Stout, L. (1999) ‘A team production theory of corporate law’ Virginia Law Review, vol.85, pp. 247-328

Commission (2007) Report on the implementation of the Directive on Takeover Bids, Brussels, 21.02.2007, SEC, pp. 268

Company Law Review Steering Committee (2000) Modern Company Law for a Competitive Economy: Developing the Framework (London: DTI)

Company Law Review Steering Committee (2001) Modern Company Law for a Competitive Economy: Final Report Volume I (London: DTI)

Cosh, A., Hughes, A. and Singh, A. (1990) Takeovers and short-termism: analytical and policy issues in the UK economy Industrial Policy Paper No. 2, London: IPPR

Davies, P. (1997) Gower’s Principles of Modern Company Law (London: Sweet and Maxwell)

Deakin, S. (2007) ‘Reflexive governance and European company law’ European Law Journal, 24 July 2007

Deakin, S. (2003) ‘Evolution for our time: a theory of legal memetics’ Current Legal Problems, vol.55, pp. 1-42

Deakin, S. and Buchanan, J. (2007) ‘Japan’s paradoxical response to the new ‘global standard’ in corporate governance’ ECGI Working Paper No. 87/2007, August 2007

Deakin, S., Hobbs, R., Nash, D. and Slinger, G. (2003), ‘Implicit contracts and corporate governance: in the shadow of the City Code, in Campbell, D., Collins, H. and Wightman, J. (eds.) Implicit Dimensions of Contracts (Oxford: Hart), pp.289-331

Deakin, S. and Slinger, G. (1997) ‘Hostile takeovers, corporate law and the theory of the firm’ Journal of Law and Society, vol.24, pp.124-150

Dodd, E.M. (1932) ‘For whom are corporate managers trustees?’ Harvard Law Review, vol.45, pp. 1145-1163

Gelter, M. (2007) ‘A theory on the impact of shareholder control and ownership concentration on corporate stakeholders: or, team production meets comparative corporate governance’, paper presented at LSA conference, Berlin

Gugler, K., D.C. Mueller, and B.B. Yurtoglu (2004)’Corporate Governance Around the World’, Oxford Review of Economic Policy, vol. 20, no. 1, pp.129-156

Hannah, L. (1974) ‘Takeover bids in Britain before 1950: an exercise in business “pre-history”’ Business History, vol.16, pp.65-77

Hannah, L. (2007) ‘The divorce of ownership and control: recalibrating imagined global trends’ Business History, vol.49, pp.404-438

Hansmann, H. (1996) The Ownership of Enterprise (Cambridge, MA: Bellknap Press)

Hansmann, H. and Kraakman, R. (2001) ‘The end of history for corporate law’ Georgetown Law Journal, vol.89, pp. 439-468

High Level Group (2002a) Report of the High Level Group of Company Law Experts on Issues Related to Takeover Bids (Brussels: European Commission)

High Level Group (2002b) Report of the High Level Group of Company Law Experts on a Modern Regulatory Framework for Company Law in Europe (Brussels: European Commission)

Hutton, W. (1995) The State We’re In (London: Cape)

Ireland, P. (1999) ‘Back to the future: Adolf Berle, the Law Commission and directors’ duties’ Company Lawyer, vol.20, pp.203-211

Jackson, G. and Miyajima, H. (2007) ‘The diversity and change of corporate governance in Japan’ In Aoki, M., Jackson, G. & Miyajima, H. (eds.) Corporate Governance in Japan: Institutional Change and Organizational Diversity. Oxford: Oxford University Press

Jensen, M (2005) A theory of the firm: governance, residual claims, and organizational forms, Cambridge, Massachusetts: Harvard University Press

Jensen, M. (2001) ‘Value maximisation, stakeholder theory, and the corporate objective function’ Journal of Applied Corporate Finance, vol.14, pp.8-21

Jensen, M.C. (2003) ‘ The agency costs of overvalued equity’, CES ifo Forum Munich Economic Summit 2-3 May, Vol. 4, No.2, pp. 14-16

Johnston, A. (1980) 'The City Take-over Code', Oxford: OUP

Jorgenson, Dale, W. (2001) ‘Information technology and the U.S. economy’, American Economic Review

Jorgenson, Dale, W. (2003) ‘ U.S. growth resurgence’, CES ifo Economic Studies, Vol 49, No.1, pp. 27-47

Kay, John (2003) ‘Challenging the claims for the role of capital markets’, CES ifo Forum, Munich Economic Summit 2-3 May, Summer 2003, Vol.4, No.2, pp. 17-20

Kelly, M. (2002) ‘The incredibly unproductive shareholder’ Harvard Business Review, January

Kennedy, A. (2000) The End of Shareholder Value, Corporations at the Crossroads (Cambridge, MA: Perseus)

Millon, D. (2002) ‘Why is corporate management obsessed with quarterly earnings and what can be done about it?’ George Washington Law Review, vol.70, pp.890-920

METI & MOJ (2005) 企業価値・株主共同の利益の確保又は向上のための買収防衛策に関する指針 (Guidelines Regarding Takeover Defence for the Purposes of Protection and Enhancement of Corporate Value and Shareholders' Common Interests), Tokyo: 経済産業省 (METI) and 法務省 (Ministry of Justice)

Milhaupt, C. J. (2006) ‘The rise of hostile takeovers in Japan’, Zeitschrift für Japanisches Recht (Journal of Japanese Law), vol.11, pp.199-204

Miyajima, H. & Kuruoki, F. (2005) ‘The unwinding of cross-shareholding: causes, effects, and implications’, In Aoki, M., Jackson, G. & Miyajima, H. (eds.) Corporate Governance in Japan: Institutional Change and Organizational Diversity, RIETI Discussion Paper Series 05-E-006

Mueller. D. (2003) ‘The fiancés literature on mergers: a critical survey,’ in M. Waterson, (ed.), competition, monopoly and corporate governance, UK: Edward Elgar, pp. 161-205

National Stock Exchanges (2006) 平成１７年度株式分布状況調査の調査結果について (Results of Shareholding Distribution Survey for 2005), Tokyo, Osaka, Nagoya, Fukuoka, Sapporo: 全国証券取引所 National Stock Exchanges

Nikkei (2007) 買収防衛策導入、２００社に迫る (‘Introduction of anti-takeover strategies: close to 200 companies’) Tokyo: 日本経済新聞 (Nihon Keizai Shimbun)

Njoya, N. (2007) Property in Work, The Employment Relationship in the Anglo-American Firm, Aldershot: Ashgate

NLI Research (2004) 株式持合い状況調査、２００３年度版 (Cross-Shareholding Survey 2003), Tokyo: ニッセイ基礎研究所 (NLI Research)

Parkinson, J. (2003) ‘Models of the company and the employment relationship’ British Journal of Industrial Relations, vol.41, pp.481-509

Peacock A and Bannock G (1991) Corporate take-overs and the public interest. Aberdeen: Aberdeen University press for the David Hume Institute

Porter, M. (1992) ‘Capital disadvantage: America’s failing capital investment system’, Harvard Business Review, 70, (September-October), pp. 65-82

Ravenscraft DJ and Scherer FM (1987) Mergers, sell-offs and economic efficiency, Washington DC: Brookings Institution

Rebérioux, A. (2007) ‘Does shareholder primacy lead to a decline in managerial accountability?’ Cambridge Journal of Economics, vol.31, pp. 507-524

Scherer FM (1998) ‘Corporate take-overs: The efficiency argument’ Journal of Economic Perspectives, Vol. 2, No. 1 (Winter) pp.69-82

Scherer FM (2006) ‘A new retrospective on mergers’ Review of industrial organization, vol.28, pp.327-341

Shiller, Robert J. (2002) Irrational Exuberance. Princeton University Press, Princeton

Shiller, Robert J. (2004) ‘Figuring out financial markets, more psychology than economics?’ Interview with Robert Shiller, IMF Survey 12 April 2004, pp.111-112

Shleifer, A. and Summers, L. (1988) ‘Breach of trust in hostile takeovers’, in Auerbach. A. (ed) (1988) Corporate Takeovers: Causes and Consequences (Chicago: University of Chicago Press), pp.33-56

Schleifer, A. (2000) Inefficient Markets, Oxford University Press, Oxford

Siems, M. (2007) ‘Shareholder protection around the world (‘Leximetric II’)’, CBR Working Paper No. 359, Centre for Business Research, University of Cambridge

Singh, A. (1992) ‘Corporate Take-overs’ in J. Eatwell, M. Milgate and P.Newman (eds.), The New Palgrave Dictionary of Money and Finance, London: Macmillan, pp.480-486

Singh A (1998) ‘Liberalisation, the stock market and the market for corporate control: a bridge too far for the Indian economy?’ In Ahluwalia, IJ and Little IMD (eds) India’s Economic Reforms and Development: Essaysfor Manmohan Singh, Oxford: OUP, pp.169-196

Singh, A. (1999) ‘ Should Africa promote stock market capitalism?’, Journal of International Development, vol.11, pp.343-365

Singh A. (2000) ‘The Anglo-Saxon market for corporate control: The financial system and international competitiveness’ in Candace Howes and Ajit Singh (eds.) Competitiveness matters: Industry and economic performance in the US, Ann Arbor: University of Michigan Press, pp.89-105

Singh, A., Singh, A., and Weisse, B. (2002) ‘Corporate governance, competition, the new international financial architecture, and large corporations in emerging markets’, Centre for Business Research Working Paper no. 250, University of Cambridge

Singh, A., Glen, J., Zammit, A., De-Hoyos, R., Singh, A.and Weisse, B. (2005) ‘Shareholder value maximization, stock market and new technology: Should the US cooperate method be the universal standard?’, Centre for Business Research Working Paper no. 315, University of Cambridge

Singh, A. (2006) ‘Stock Market and Economic Development’ in Clark, David Alexander (ed) The Elgar Companion to Development Studies, pp. 584-590, Edward Elgar, UK

Singh, A.(2008) ‘Stock Market in Low and Middle Income Countries’, presented at the Workshop on Debt, Finance and Emerging Issues in Financial Integration, 8-9 April 2008, United Nations Headquarters, New York

Strine, L. (2007) ‘Toward common sense and common ground? Reflections on the shared interests of management and labour in a more rational system of corporate governance’ Discussion Paper No. 585, 05/2007, John M. Olin Centre for Law, Economics and Business, Harvard University

Summers L.H. (1998) ‘Opportunities Out of Crises: Lessons From Asia’, Remarks to the Overseas Development Council, From the Office of Public Affairs, 19 March 1998

Summers L.H. (1999) Quoted in article ‘Winning ways: ready bucks and a flair of risk’, Financial Times, 14 December 1999

Tichy, G.(2001) ‘What do we know about success and failure of mergers?’ Journal of Industry, Competition and Trade, Vol. 1, No. 4, pp. 347-394

Tobin, J. (1984) ‘On efficiency of the financial system’, Lloyds Bank Review, 1- 15 July

TSE (2007) TSE-Listed Companies White Paper of Corporate Governance 2007, Tokyo: Tokyo Stock Exchange, Inc.

Useem, M. (1996) Investor Capitalism, New York : Basic Books

Viénot, M. (1995) ‘Rapport sur le conseil d’administration des sociétés cotées’ Revue de droit des affaires internationales, vol. 8, pp.935-945

Whittaker, H. and Hayakawa, M. (2007) ‘Contesting ‘corporate value’ through takeover bids in Japan’ Corporate Governance: An International Review, vol.15, pp.16-26

Yarrow, G. (1985) ‘Shareholder protection, compulsory acquisition and the efficiency of the takeover process’ Journal of Industrial Economics, vol.34, pp.3-16