The Elgar Companion to Ronald H. Coase
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The Elgar Companion to Ronald H. Coase

Edited by Claude Ménard and Elodie Bertrand

Ronald H. Coase was one of the most innovative and provocative economists of the twentieth century. Besides his best known papers on ‘The Nature of the Firm’ and ‘The Problem of Social Cost’, he had a major role in the development of the field of law and economics, and made numerous influential contributions to topics including public utilities, regulation and the functioning of markets. In this comprehensive Companion, 31 leading economists, social scientists and legal scholars assess the impact of his work with particular reference to the research programs initiated, the influence on policymakers, and the challenge to conventional perspectives.
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Chapter 13: The realistic method of Ronald Coase: lessons for research on mergers and acquisitions

J. Harold Mulherin


Ronald Coase was awarded the Nobel Prize in 1991 for his path breaking emphasis of the importance of transaction costs for economic organization and legal institutions and is considered the father of the spectrum auction and of carbon emissions trading. Yet amid these righteous accolades, what is often lost is the unique research method of Professor Coase. As stated in the first three sentences of his 1937 paper on the nature of the firm, Coase championed realism in economic modeling. In this chapter, I draw lessons from the realistic method of Coase for the analysis of mergers and acquisitions, a topic to which Coase’s theory and research is clearly applicable. Indeed, in his 1972 paper on the state of research on industrial organization, Coase urged a systematic and detailed study of mergers and acquisitions. Certainly there are many questions related to mergers and acquisitions that can benefit from Coase’s insights such as antitrust implications, the choice between mergers and internal growth, and the gains to bidding firms. In this chapter, my particular emphasis will be on the relevance of Coase’s realistic mode of economic analysis to the study of the value received by target shareholders during the course of a takeover transaction. I choose this point of focus to clearly illustrate how a detailed study of the takeover process à la Coase can resolve otherwise anomalous findings on takeover gains.

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