PAM_334_Fall_2008_Lecture_12 - PAM3340 Lecture12 Agenda:

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PAM 3340 Lecture 12 Agenda: Economics of corporate control Agency effects of corporate control transactions Takeover law Jensen, “Takeovers: Causes and Consequences” Agency costs of free cash flow Event study method
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The Economics of Corporate  Control But in the corp. must also consider  effect of transactions on  agency costs Contracting costs are another reason  firm’s boundaries may change For example, if the cost of contacting with  a supplier rises, the firm may buy the  supplier
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Agency Cost Effects of for  Corporate Control Changes New management team? Threat of a takeover? Going private transactions? Increases in debt/equity ratios? Other alterations of managerial  incentives?
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Costs and Benefits of  Structural Changes  Recall the costs and benefits of the  corporate form Main cost is agency cost  Capital raising/risk-spreading benefits If these benefits diminish in value, then it  makes sense to “de-corporatize” the firm
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Overview of Takeover Law State laws allow for freedom of contract  Corporations can make firms either  takeover-proof or takeover-prone Corporations compete on this Delaware is very permissive regarding  use of anti-takeover devices Examples
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Federal Law: Williams Act Federal law affecting takeovers:
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PAM_334_Fall_2008_Lecture_12 - PAM3340 Lecture12 Agenda:

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