 A theory of optimal expropriation, mergers and industry competitionNeil Brisley (), Arturo Bris and Christos Cabolis Journal of Banking & Finance, 2011, vol. 35, issue 4, 955-965 Abstract: We model a competitive industry where managers choose quantities and costs to maximize a combination of firm profits and benefits from expropriation. Expropriation is possible because of corporate governance 'slack' permitted by the government. We show that corporate governance slack induces managers to choose levels of output and costs that are higher than would otherwise be optimal. This, in turn, benefits consumers - the equilibrium price is lower - and other stakeholders such as suppliers and employees. Depending on the government's social welfare objective, less-than-perfect investor protection can be optimal. We show why some mechanisms suggested by the literature as improving investor protection - legal change, cross-listing, domestic mergers - may not be effective. We provide a theoretical argument showing the efficacy of cross-border mergers. The stronger corporate governance of a foreign acquirer, imposed on the domestic target firm, benefits merging shareholders and those of competing unmerged domestic firms. Keywords: International; corporate; governance; Market; regulation; Cross-listing; Domestic; and; cross-border; mergers; and; acquisitions (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:4:p:955-965 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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