Value Maximization and the Acquisition Process

Value Maximization and the Acquisition Process Abstract Like the rest of us, corporate managers have many personal goals and ambitions, only one of which is to get rich. The way they try to run their companies reflects these personal goals. Shareholders, in contrast, deprived of the pleasures of running the company, only care about getting rich from the stock they own. The takeover wave of the 1980s put the managershareholder conflict to a new test. Where other checks on management failed, hostile takeovers could now wrest control from managers who ignored the interests of their shareholders. More so than ever before, fear of such disciplinary takeovers has forced managers to listen to shareholder wishes. But even now, many acquisitions are not of this disciplinary variety. Ironically, making acquisitions is often just the quickest and easiest way for managers to expand the scope of their control by directing the firm's cash flows into new ventures. In this paper, we appraise the acquisition process from the managerial perspective. Has the pressure brought by hostile takeovers effectively restricted non-value-maximizing conduct by managers? Are acquisitions themselves driven by non-value-maximizing behavior on the part of acquiring managers? We conclude with some recommendations for improving the takeover process. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Perspectives American Economic Association

Value Maximization and the Acquisition Process

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Publisher
American Economic Association
Copyright
Copyright © 1988 by the American Economic Association
Subject
Symposium
ISSN
0895-3309
D.O.I.
10.1257/jep.2.1.7
Publisher site
See Article on Publisher Site

Abstract

Abstract Like the rest of us, corporate managers have many personal goals and ambitions, only one of which is to get rich. The way they try to run their companies reflects these personal goals. Shareholders, in contrast, deprived of the pleasures of running the company, only care about getting rich from the stock they own. The takeover wave of the 1980s put the managershareholder conflict to a new test. Where other checks on management failed, hostile takeovers could now wrest control from managers who ignored the interests of their shareholders. More so than ever before, fear of such disciplinary takeovers has forced managers to listen to shareholder wishes. But even now, many acquisitions are not of this disciplinary variety. Ironically, making acquisitions is often just the quickest and easiest way for managers to expand the scope of their control by directing the firm's cash flows into new ventures. In this paper, we appraise the acquisition process from the managerial perspective. Has the pressure brought by hostile takeovers effectively restricted non-value-maximizing conduct by managers? Are acquisitions themselves driven by non-value-maximizing behavior on the part of acquiring managers? We conclude with some recommendations for improving the takeover process.

Journal

Journal of Economic PerspectivesAmerican Economic Association

Published: Feb 1, 1988

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