We will refer to the latter as the “monitoring” literature.
jh2-5型回柱绞车设计Both approaches rely heavily on two early contributions by Grossman and Hart (1980) and Kyle and Vila (1991) on the issue of free-riding, noise trading and the likelihood of a takeover to take place for a publicly held corporation.
Grossman and Hart, in their breakthrough paper, are faced with the common belief that a widely held corporation that is not being run in the best interest of its existing shareholders will be vulnerable to a takeover bid. This argument, very popular but by then unproven, originates from the existence of an “original” free-riding problem associated with the “delegation of power from many to few”. No individual has a large enough incentive to devote time and resources to ensuring that his/her representatives are acting in the best interest of the principals. The agents serve a Public Good, the well-being of the corporation, whose benefits are enjoyed by the vast collectivity of shareholders. As apparently none of them can be excluded from that Public Good, the social benefit of the monitoring activity and the cost that is usually attached to it frequently outweigh the private benefit to any of the individual principals in exerting such an activity. Inother terms, the benefits of monitoring the managers’ activity are a Public Good in a market economy and each individual shareholder has a strong incentive to free-ride in its production.
The use of a takeover bid mechanism seems to solve the resulting market failure. A situation in which the management of a corporation is not acting in the shareholders’ interests but each single shareholder is too small to be able to profitably monitor the agents’ activities will not persist: in fact, an entrepreneur, a “raider”, possibly endowed with insider’s information about the value of the firm if better managed, can make a takeover bid, buy the company at a low price, manage it well and then sell it at a high price. Grossman and Hart show that this argument ignores the existence of a “derived” free-riding problem. Suppose that a raider launches his bid at a specified tender price and that each shareholder is so small not to be pivotal, i.e. so small that he does not expect his tender decision to affect the outcome of the raider’s attempt. Then, if that shareholder believes the takeover attempt will be successful, that the raider will manage the firm and improve its business prospects, he also anticipates a price appreciation for his shares, thus will retain them, unless the tender price fully reflects the expected price increase. But if that was the case, there would not be any profit left for the raider, i.e. a takeover would be possible just if unprofitable for the raider. Small shareholders realize the benefits of the monitoring activities exercised by large shareholders without incurring in any of the costs related to it. The resulting, inefficient amount of monitoring represents a social loss, as there will be many raids which should take place, but that will never do, because it is not profitable for the raider to execute them, takeover the company, impose a new management and improve the probability distribution of the payoffs generated by the firm
The dissipative nature of the benefits associated with the monitoring activity over a company’s management is at the heart of most of the recent attempts by the literature to explain why, at the IPO stage of a game between entrepreneur and potential shareholders, the creation of a large controlling block, able to exert profitably control over managers’ decisions, may be ex-ante optimal, insofar as it maximizes the ex-ante value of the firm, hence the revenues the venture capitalist obtains for giving up his/her property rights.
AT89S51单片机鸡舍温度控制系统设计+电路图+汇编源程序Kyle and Vila propose a typical micro-market structure approach as a solution to the inefficient amount of monitoring resulting from the free-riding by small shareholders. Noise trading can provide camouflage that makes it possible for a large corporate outsider or a big corporate insider willing to acquire a controlling block to takeover the company at profitable terms, monitor over managers’ activities and eventually attenuate the market failure described above.
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