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The Business Judgement Rule vs. the Efficient Market Hypothesis

The Business Judgement Rule vs. the Efficient Market Hypothesis Contests for corporate control often create a conflict between a legal principle, the business judgment rule BJR, and an economics principle, the efficient market hypothesis EMH. The BJR focuses on the process of decision making and requires managers to be guided by their integrity and diligence. The EMH focuses on outcomes and expects decisions to be guided by stock prices. Ideally the principles do not conflict, but when they do, when the market disagrees with managers' decisions, it is important to understand why. This article discusses the principles, why they sometimes conflict, and circumstances when one should outweigh the other. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

The Business Judgement Rule vs. the Efficient Market Hypothesis

Managerial Finance , Volume 21 (5): 13 – May 1, 1995

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0307-4358
DOI
10.1108/eb018515
Publisher site
See Article on Publisher Site

Abstract

Contests for corporate control often create a conflict between a legal principle, the business judgment rule BJR, and an economics principle, the efficient market hypothesis EMH. The BJR focuses on the process of decision making and requires managers to be guided by their integrity and diligence. The EMH focuses on outcomes and expects decisions to be guided by stock prices. Ideally the principles do not conflict, but when they do, when the market disagrees with managers' decisions, it is important to understand why. This article discusses the principles, why they sometimes conflict, and circumstances when one should outweigh the other.

Journal

Managerial FinanceEmerald Publishing

Published: May 1, 1995

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