Takeover Bids, The Free-Rider Problem, and the Theory of the Corporation
Abstract
It is commonly thought that a widely held corporation that is not being run in the interest of its shareholders will be vulnerable to a takeover bid. We show that this is false, since shareholders can free ride on the raider's improvement of the corporation, thereby seriously limiting the raider's profit. We analyze exclusionary devices that can be built into the corporate charter to overcome this free-rider problem. We study privately and socially optimal corporate charters under the alternative assumptions of competition and monopoly in the market for corporate control.
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- Authors
- Grossman, S. J., & Hart, O. D.
- ORCID
- Hart, Oliver D.
- Venue
- The Bell Journal of Economics
- Publisher
- JSTOR
- Published
- 1980
- Volume
- 11
- Issue
- 1
- Pages
- 42
- ISSN
- 0361-915X (ISSN-L)
- OpenAlex
- W1531758582
- Cited by
- 3,098
- References
- 0
- Citations by year
- 2026: 53 · 2025: 59 · 2024: 73 · 2023: 106 · 2022: 95 · 2021: 78 · 2020: 86 · 2019: 71 · 2018: 100 · 2017: 99 · 2016: 112 · 2015: 115 · 2014: 137 · 2013: 112 · 2012: 146
- FWCI
- 64.43
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- The Bell Journal of Economics (publishedVersion)
- OpenGrey (Institut de l'Information Scientifique et Technique) (submittedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Merger and Competition Analysis
- Social Sciences › Business, Management and Accounting › Strategy and Management › Corporate Governance and Law
- Keywords
- takeover bids, free-rider problem, corporate control, corporate charters, shareholder interests, market for corporate control, competition and monopoly
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