Buyouts in Large Companies

Posted: 18 May 1998

See all articles by Benjamin E. Hermalin

Benjamin E. Hermalin

University of California, Berkeley

Alan Schwartz

Yale Law School

Abstract

We consider legal rules that determine the price at which minority shareholders can be excluded from the corporate enterprise after a change in control. These rules affect investment after such a change as well as the probability of the change itself. Our principal results are that minority shareholders should be given the value that their interest would have had were no later investment made; and that this rule is best implemented, in large companies, by awarding the minority the pre-investment market value of their shares. The former aspect of our proposal is consistent with much current law but is rejected by many modern law reformers; the latter aspect of our proposal is novel.

JEL Classification: G34, G38, K22

Suggested Citation

Hermalin, Benjamin E. and Schwartz, Alan, Buyouts in Large Companies. Available at SSRN: https://ssrn.com/abstract=10030

Benjamin E. Hermalin (Contact Author)

University of California, Berkeley ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-7575 (Phone)
510-643-1420 (Fax)

Alan Schwartz

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
203-432-4030 (Phone)
203-432-8260 (Fax)

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