New Perspectives on the Modern Corporation series
Edited by Per-Olof Bjuggren and Dennis C. Mueller
Chapter 9: The Stock Market, the Market for Corporate Control and the Theory of the Firm: Legal and Economic Perspectives and Implications for Public Policy
Simon Deakin and Ajit Singh1 INTRODUCTION 1. In this chapter we consider the relationship between shareholder value, the market for corporate control, and economic and legal theories of the firm. We argue that, contrary to current conventional wisdom, support for an active market for corporate control is neither a core principle of company law nor an essential ingredient of financial and economic development. Indeed, the opposite could well be the case – an important element of reform should be the prevention of the emergence of a market for corporate control. The absence of such a market in coordinated market systems, such as Germany and Japan during their modern economic development, was not an evolutionary deficit but an effective and positive institutional arrangement. The unravelling of that arrangement, which is currently being encouraged by regulatory changes and which some commentators see as a necessary part of adjustment to globalization, has the potential to destabilize existing production regimes, although so far it has failed to have this effect. Aspects of a regulatory regime favourable to the market for corporate control, such as a mandatory bid rule, have been adopted in many developing economies over the past decade; however, in the absence of countervailing power for employees of the kind found in most European systems, it is possible that these developments could impose significant economic and social costs associated with restructuring. The chapter is ordered as follows. Section 2 outlines the relationship between shareholder value and the core principles of company law in the...
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