The Role and Future of Self-Regulation in the Market for Corporate Control: A Comparative Narrative of the Two Models in the UK and China

2021 ◽  
pp. 85-119
Author(s):  
Zhaohui Shen ◽  
Linyao Tang ◽  
Charlie Xiao-chuan Weng
Keyword(s):  
Self Regulation ◽  
Corporate Control ◽  
Market For Corporate Control ◽  
The Uk

Agency costs in the market for corporate control: evidence from UK takeovers

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Edward Jones ◽  
Bing Xu ◽  
Konstantin Kamp
Keyword(s):  
Agency Costs ◽  
Design Methodology ◽  
Corporate Control ◽  
Sales Growth ◽  
Content Type ◽  
Market For Corporate Control ◽  
The Uk ◽  
Practical Implications ◽  
Theory Framework ◽  
Made In

Purpose This paper aims to examine whether agency costs predict disciplinary takeover likelihood for the UK listed companies between 1986 and 2015. Design/methodology/approach Using survival analysis, the approach is to identify candidates for disciplinary takeover on the basis of Tobin’s Q (TQ), which is consistent with the approach advocated by Manne (1965). This study then examines how indicators of agency costs affect takeover likelihood within the set of disciplinary candidates. Findings This paper provides evidence of the effectiveness of TQ, rather than excess return, in identifying disciplinary takeover candidates. Takeover hazard for disciplinary candidates is higher for companies with higher levels of asset utilization and sales growth in particular. Companies with stronger agency problems are relatively less susceptible to disciplinary takeover. Practical implications Given the UK context of the study, where anti-takeover provisions are disallowed and when compared to findings of US studies, the results imply some support for the effectiveness of an open merger policy. Originality/value While the connection between takeover likelihood and the market for corporate control has been made in previous studies, the study adopts a more explicit agency theory framework than previous studies of takeover likelihood. A key component of the contribution follows from differentiating candidates for disciplinary takeovers from other forms of mergers and acquisitions.

The Market for Corporate Control: Value, Stakeholders, and Governance

2016 ◽  
Author(s):  
David Kershaw
Keyword(s):  
Empirical Evidence ◽  
Corporate Control ◽  
Short Term ◽  
The Public ◽  
Analysis And Evaluation ◽  
Control Value ◽  
Clear Cut ◽  
Market For Corporate Control ◽  
Empirical Context ◽  
The Uk

This Chapter introduces the market for corporate control and provides theoretical and empirical context about the functioning and effects of the market for corporate control. Ideally such context should inform the analysis and evaluation of the Takeover Code’s regulation of the UK market for corporate control. However, as the Chapter shows, neither our understanding of the likely effects of the market for corporate control on companies, boards, shareholders and stakeholders, nor the state of empirical evidence provide clear cut guidance on how to regulate the market for corporate control. The Chapter considers evidence on the value effects of takeovers and shows that evidence from the short term market response to announced takeovers supports claims that takeovers in aggregate generate value, but the longer term evidence is more mixed and inconclusive. It also considers the methodological limitations of both the short term and long term evidence. The Chapter then proceeds to consider the effect of the market for corporate control on stakeholders. It explores the commonly held view that takeovers are detrimental for employees but finds again that the empirical evidence is inconclusive, although the theoretical case that takeover activity may undermine employee investment in the business remains compelling. The Chapter then explores the role of the market for corporate control as a governance device. It is often assumed that the market for corporate control acts as a disciplinary device holding managers to account, but as the Chapter shows the disciplinary effects work differently and less precisely than regulators and the public debate commonly assume. The Chapter also shows that such indirect effects may also mould management and board behaviour in economically suboptimal ways, which the Chapter considers in the context of the debate about the possible short term orientation of UK boards.

Origins: The Creation of the Takeover Code

2016 ◽  
Author(s):  
David Kershaw
Keyword(s):  
Self Regulation ◽  
Corporate Control ◽  
The State ◽  
The Self ◽  
Current View ◽  
Open Market ◽  
Hostile Takeovers ◽  
Market For Corporate Control ◽  
Banking Community ◽  
Mandatory Bid Rule

This Chapter explores the origins of the Takeover Code and Panel. It considers the historical drivers that led both to the Code’s predecessor - the Notes on the Amalgamation of British Business - in the late 1950s and to the Code and the Takeover Panel in the late 1960s, and the reasons why the self-regulation of the UK’s market for corporate control succeeded. The Chapter commences by providing regulatory context within which the actual takeover events which led to the Notes and the Code should be interpreted. The Chapter posits three key elements of this regulatory context: first, the prevalent British regulatory style in the mid-20th century which involved a conception of the state that contained a strong bias towards market solutions. A conception in relation to which terms such as laissez faire or deference do not do justice. The state deferred but was actively involved in facilitating market action through its channels of communication with market representatives, the threat and possibility of state action, and through the setting up of inquiries and Commissions. The second, connected, element was the self-understanding of the City of London, as almost a State within the State, like the Vatican with its capital market pope,the Governor of the Bank of England. A self-understanding that reinforced the British regulatory style and the City’s “right of self-regulation”. The third element is the evolution of corporate ownership from the middle of the 20th century involving the transformation from retail to institutional ownership. With this context, the Chapter analyses the key takeover events that created public, political, shareholder and corporate consternation in the mid- and late -1950s and the early and late 1960s. The Chapter interrogates the multifaceted reactions to these events and attempts to trace how these reactions are translated into regulatory action – the Notes, the Code and the Panel - and the substance of the Code rules. Through this analysis the Chapter shows how the merchant banking community took control of takeover regulation and argues that the formation and the substance of the Code, as well as its success, owes much to the realisation of the City’s merchant banking community that there was money to made in an active and open market for corporate control and hostile takeovers. In setting forth this account this Chapter challenges an important current view that the Code is the product of institutional shareholder co-ordination to protect their interests. The final part of the Chapter considers the success of the Code and Panel. It posits three key drivers of success: first, the fact that the merchant banking community is hard wired to both the substance and the practice of the Code; second that the Courts stayed clearly on the side-lines and took a highly deferential approach to judicial review of Panel decisions; and, third, that the substance of the Code itself demarcated the Panel’s regulatory success through two keystone rules: the non-frustration rule and the mandatory bid rule.

The globalisation of General Principle 7: transforming the market for corporate control in Australia and Europe?

Legal Studies ◽  
2008 ◽  
Vol 28 (1) ◽  
pp. 96-118 ◽  
Author(s):  
Alan Dignam
Keyword(s):  
Financial Markets ◽  
General Principle ◽  
Common Law ◽  
Corporate Control ◽  
Concentrated Ownership ◽  
Eu Directive ◽  
Market For Corporate Control ◽  
Social Market ◽  
The Uk ◽  
The Eu

The integration of national financial markets over the past 30 years has resulted in a globalised market for corporate control which has increased both the opportunities for companies to fund acquisitions and the possibility of being acquired. Takeovers and mergers have, as a result, become a matter of some concern for governments, as they try to encourage the development of financial markets but also deal with the consequences of a globalised market for corporate control, where even companies regarded as national champions are within the reach of a foreign takeover. In the course of the last decade General Principle No 7 of the UK Takeover Code, that shareholders should decide the outcome of a takeover bid, has been adopted in many jurisdictions around the world and has formed the heart of the EU Directive on Takeovers. The Principle is however a controversial one, as its adoption is often viewed in civil law jurisdictions as an attack on a core part of a social market system. This has been particularly evident in the debate on the EU Directive on Takeovers. A number of common law heritage countries have also based their takeover regime around General Principle No 7 and many of these common law heritage counties have similarities with social market systems, in that they have less significant stock exchanges than the UK, the make up of their shareholding base is more concentrated and employment protections are more extensive. A central jurisdiction in that overlap is Australia, with exactly this combination. The purpose of this paper is to examine the historical effect of introducing UK takeover principles into the Australian system, by creating an empirical data set of takeovers of Australian listed companies covering the period before and after those UK-based principles were introduced. In doing so the paper found that factors such as concentrated ownership, capital controls and protective labour law have significant effects on the market for corporate control. There was no transforming effect evident in adopting an anti-managerial pro-shareholder takeover regime. As such, the fear that the adoption of a standardised EU-wide takeover Directive, along the lines of the UK Panel on Takeovers and Mergers' shareholder-oriented General Principle 7, would have a negative transforming effect on social market systems appears, on the Australian evidence, to be overblown, while other key features of such systems, particularly concentrated ownership and protective labour laws, remain in place.

Corporate Governance and Firm Performance

2013 ◽  
pp. 490-510 ◽  
Author(s):  
Anup Agrawal ◽  
Charles R. Knoeber
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Family Firms ◽  
Corporate Control ◽  
Future Research ◽  
Inside Ownership ◽  
Market For Corporate Control ◽  
Corporate Governance Mechanisms ◽  
The Us ◽  
The Uk

This paper reviews the literature on corporate governance and firm performance in economies with relatively dispersed stock ownership and an active market for corporate control, such as the US and the UK. Section 1 outlines a framework of the basic agency problem between managers and shareholders and the corporate governance mechanisms that have evolved to address this problem. Section 2 deals with the relation between firm performance and inside ownership. Section 3 pertains to the relation between firm performance andmonitoring by large shareholders, monitoring by boards, and shareholder rights regarding takeover of the firm. Section 4 considers the relation between governance regulation and firm performance. Section 5 deals with the relation between governance and firm performance in family firms, and section 6 provides a summary and identifies some remaining puzzles and unresolved issues for future research.

scholarly journals Protectionism and the EU Market for Corporate Control: Is It Possible to Get the Best of Both Worlds?

2018 ◽  
Vol 15 (2) ◽  
pp. 308-338
Author(s):  
Jonathan Mukwiri
Keyword(s):  
Corporate Control ◽  
European Parliament ◽  
Policy Choices ◽  
Market For Corporate Control ◽  
The Uk ◽  
Short Termism ◽  
The Eu ◽  
Made In

Recent reports of the Commission and the European Parliament have revisited the concerns of protectionism in the EU. This article discusses these concerns in light of the liberal and protectionist divide in the EU market for corporate control, focusing on the board neutrality rule during takeovers. The arguments advanced in this article are threefold. First, that liberal markets are likely to encourage takeovers, but breed short-termism. Second, that protectionist markets are likely to discourage takeovers, but facilitate long-termism. Third, that short-termism in the UK and the so-called protectionism in Germany are the result of entrenched policy choices made in those jurisdictions in regard to the interests they protect in regulating the market for corporate control. The article draws a conclusion that it is hard for the UK and Germany to get the best of both worlds, that is, the liberal market and long-termism.

scholarly journals The UK Non-Frustration Rule: Should it be Replaced with a US-inspired Approach?

2020 ◽  
Vol 4 (1) ◽  
pp. 96
Author(s):  
Huanyang Ma
Keyword(s):  
Mergers And Acquisitions ◽  
Software Design ◽  
Corporate Control ◽  
Japanese Company ◽  
Market For Corporate Control ◽  
The Us ◽  
The Uk

Recently, Arm Holdings, the most successful semiconductor and software design company in the UK, has agreed to be sold to SoftBank, a Japanese company. This takeover case, along with the case that Cadbury was acquired by Kraft in 2010, has led to questions about the openness to foreign mergers and acquisitions.[1] The non-frustration rule plays an important role in the openness of the UK’s market for corporate control.[2] Therefore, it is time to rethink about the non-frustration rule. One of the most heated questions is whether the rule should be replaced with the US-inspired approach. This article argues that the US-inspired approach will not function as well in the UK as it does in the US. After all, the UK and the US differ a lot in corporate structures and company regulations which make the background of the non-frustration rule different in two countries. 

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