The takeover market and corporate governance Essay

The coup detat market and corporate governance - Essay ExampleThe corporate coup detat market is the market for corporations which ware been weakened by poor vigilance or systemic risks, the prices of which have therefore fallen, and which present opportunities for buy-out by stronger, cash rich firms. The approach to corporate donovers may be either friendly or hostile, but the intention is the same to gain control over a profitable enterprise. Other than this basic definition, there have been certain characteristics popularly attributed to corporate takeover bids, among which are that they are, agree to De Pamphilis (2010, p. 86) (1) motivated by excessive greed (2) reviled as a job destroyer (3) praised as a means of dislodging incompetent management and (4) heralded by shareholders as a source of windfall gains. small-arm these may be true, the corporate takeover market serves two important purposes in a relinquish market economy, which are, according to De Pamphilis ( 2010) that (1) The corporate takeover market facilitates the efficient allocation of resources to sectors where they may be unavoidable more and where they can be used more efficiently and (2) The corporate takeover market provides a mechanism by which underperforming corporate managers may be held accountable for their inefficiencies and to discipline them for their poor management of their corporations.Corporate takeover would sometimes take the form of hostile takeovers or proxy fights, the successful conduct of which may substitution incompetent and unreliable managers, and thereby promote good corporate governance practices. ... 87) When mechanisms for corporate control essential to the firm are relatively weak, then it is possible for a hostile takeover of the firm to take place. In such cases, the corporate takeover market performs the function of a court of last renovate (Kini, Kracaw & Mian, 2004 in DePamphilis, 2009, p. 94). In a hostile tender offer, the potential acq uirer bypasses the board and management of the hindquarters firm, and makes a direct offer to the shareholders to purchase their shares at an attractive price. A study of nearly 8,000 acquisitions among 1980 to 1999 showed evidence that the corporate takeover market tends to impose discipline on managers of larger firms more efficaciously than on managers of smaller firms (Offenberg, 2009). Two theories that have evolved to explain why managers resist takeover attempts are the management entrenchment theory, and the shareholders interest theory. Management entrenchment theory states that managers defend against takeover attempts in order to conserve their stay with the firm (it will be recalled that takeovers result in new and better management substitute the old and incompetent one). Shareholders interest theory, on the other hand, posits that management may resist takeovers as a bargaining strategy to raise the proposed purchase price for the benefit of the shareholders of th e target firm. Companies have developed some(prenominal) defenses against takeover bids, such as poison pills (these are plans that give shareholders the right to buy the companys shares below the prevailing market price, in the likelihood of a takeover bid). However, in order to better transparency and meet shareholders demands for more responsive corporate governance practices, many of these firms