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  3. Journal of Economic Perspectives
  4. Winter 1988
  5. Value Maximization and the Acquisition Process

Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

Value Maximization and the Acquisition Process

  • Andrei Shleifer
  • Robert W. Vishny
Journal of Economic Perspectives
vol. 2, no. 1, Winter 1988
(pp. 7–20)
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Abstract

Like the rest of us, corporate managers have many personal goals and ambitions, only one of which is to get rich. The way they try to run their companies reflects these personal goals. Shareholders, in contrast, deprived of the pleasures of running the company, only care about getting rich from the stock they own. The takeover wave of the 1980s put the manager-shareholder conflict to a new test. Where other checks on management failed, hostile takeovers could now wrest control from managers who ignored the interests of their shareholders. More so than ever before, fear of such disciplinary takeovers has forced managers to listen to shareholder wishes. But even now, many acquisitions are not of this disciplinary variety. Ironically, making acquisitions is often just the quickest and easiest way for managers to expand the scope of their control by directing the firm's cash flows into new ventures. In this paper, we appraise the acquisition process from the managerial perspective. Has the pressure brought by hostile takeovers effectively restricted non-value-maximizing conduct by managers? Are acquisitions themselves driven by non-value-maximizing behavior on the part of acquiring managers? We conclude with some recommendations for improving the takeover process.

Citation

Shleifer, Andrei, and Robert W. Vishny. 1988. "Value Maximization and the Acquisition Process." Journal of Economic Perspectives 2 (1): 7–20. DOI: 10.1257/jep.2.1.7

JEL Classification

  • D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
  • G14 Information and Market Efficiency; Event Studies; Insider Trading
  • G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
  • G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
  • G38 Corporate Finance and Governance: Government Policy and Regulation
  • K22 Business and Securities Law
  • M52 Personnel Economics: Compensation and Compensation Methods and Their Effects