Changes in corporate control-throughmergers, takeovers, acquisitions, divestitures, and thelike-enhance shareholders' value. They allow thebusinesses to be transferred to the control of new ownerswho can put business assets to work more efficiently. Inmost countries, however, the market for corporate control issignificantly restricted by anti-takeover laws and businesspractices used to entrench management, such as poison pills,heavy debt, pyramid schemes, and cross-holdings of equity.The key to overcoming these obstacles is to restructureincentives-by requiring business groups to discloseintercorporate ownership and banks to limit connectedlending, by ensuring that bankruptcy law allows effectivetransfer of control, and by removing regulatory barriers totakeovers. Many studies of mergers, takeovers, acquisitions,and divestitures have confirmed that these controltransactions generally maximize shareholders' value(Jensen and Ruback 1983). The gain in value is most visiblein target firms' stock prices following announcementsof takeover attempts or merger agreements. Even in the mostadvanced markets, where control transactions are common,stock prices increase 20 to 30 percent on average, dependingon the type of transaction (Jarrell, Brickley, and Netter1988). This gain represents one part of the increasedbusiness value that the acquirer is prepared to share withthe target firm.
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