The Evolution of the Market for Corporate Control - Paul Voss

Finance

Speaker : Paul Voss (CEU)

In a canonical takeover model with blockholders and dispersed shareholders, we allow an informed blockholder to choose between making a takeover bid and initiating a sale of the firm to another acquirer. Such takeover activism complements outright takeovers because the very choice mitigates the asymmetric information problem, thereby expanding takeover activity. Moreover, as more investors enter the market for corporate control, takeover activism increasingly substitutes for takeovers to become the prevailing mode of effectuating control changes. Our theory challenges the interpretation that the recent rise of investor activism replaced disciplinary acquisitions. Instead it suggests that the market for corporate control followed a natural evolution toward a new modus operandi: takeover activism, characterized by a symbiotic relationship between private equity funds and activist hedge funds.