Corporate governance, corporate control and takeovers

Abstract

There are a variety of monitoring and control mechanisms to resolve the agency conflict between shareholders and their agents, the managers. Given the centrality of the shareholder wealth maximisation goal in corporate finance, the function of these mechanisms is to ensure that managers pursue that goal. These mechanisms include: an independent board, outside block shareholdings including institutional shareholders, managerial ownership and incentives, lenders, the managerial labour market and the market for corporate control. We explore the inter-dependency of these control mechanisms and whether and how they complement, or substitute for, one another. The role of the market for corporate control, including proxy contests and outright takeovers, in resolving agency conflicts, the impediments to takeovers and their effectiveness are reviewed. We seek to explain the well-documented failure of acquirers to create value, in terms of the ineffectiveness of the corporate governance system in acquiring companies.

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