Hostile Takeover Research Paper Example | Topics and Well Written Essays - 750 words

Hostile Takeover - Research Paper Example er owns a substantial block of target’s stock commonly referred as the foothold block that can demonstrably afford to finance a hostile offer for control. Hostile dodder may require making merger to gain total control of the target’s assets this is accomplished once the bidder has purchased a majority voting stock (Anderson, 2006). Hostile tenders are known to have been around for decades; however they remain rare. The adoption of the second generation of state-level antitakeover laws that was applied between 1987 and 1990 provides an exogenous increase in the cost of hostile takeover, which go hand in hand with a natural control sample of sample of states that did not pass such laws. Additionally, the effectiveness of these laws is criticized by the question of how frequent the takeovers may be. Hostile takeover has been criticized using stakeholder’s model which is able to predict hostile takeovers as occasions for the redistribution rather than the generation of wealth. Managers find out that the gains that are made by shareholders accrue from greater efficiency in the management of assets rather than income transfers (Anderson, 2006). Hostile takeovers can be regarded as a mechanism both for raising shareholder value and for enhancing the efficiency of the corporate system as a whole. However this hostile bids has two major effects, the first effect is that the threat of an unwelcome bid served to improve the performance of incumbent managers made to align their interest more completely with the shareholders. Secondly, with hostile bids, even in unsuccessful situation they tend to induce corporate restructurings which in turn freed up productive resources to be reallocated and be more efficient hence useful elsewhere in the economy. Corporate managers have secrecy over capital structures choices this is evident as the firms’ founding shareholders cannot write a comprehensive contract specifying all future financing decisions. However, capital