The Market for Corporate Control

Restructurings often represent a major change in a company’s direction and prospects, so they often arise from significant forces for change. Restructuring\ historical record shows that as market forces, investor concerns, laws, and tax codes change, the dominant type of restructuring transaction also changes. We cannot view restructuring as unique to a specific company, somehow separate from larger economic and technological trends. Rather, we should recognize re-structuring as a response to changing markets, the changing perceptions of investors, and changing opportunities. The recent history of corporate restructurings provides some insights into how corporations have responded to changes in market forces and may suggest how they will respond to future changes. More-over, examining distinct periods in the evolution of the market for corporate control demonstrates some of the many reasons that companies have chosen to re-structure. As we progress through our historical overview, we will discuss the reasons underlying the type and magnitude of restructuring events in each era.

The market for corporate control mainly refers to the market for acquisitions and mergers where there is competition for control rights. In the theory of the market for corporate control, the conduct of takeovers by companies in that market and the accompanying threat of takeover are external control mechanisms which can reduce agency costs. The opposing view considers that the market for corporate control cannot resolve principal-agent problems and that, on the contrary, mergers and acquisitions are manifestations of acts of agency that can exacerbate contradictions between management and shareholders.