A Primer on Corporate Governance

CHAPTER 4

External Mechanisms of Corporate Governance in Spain

4.1 The Market for Corporate Control

The market for corporate control disciplines the managers of corporations with publicly traded stock to act in the best interests of shareholders. By buying up enough shares to vote in a new board of directors, a bidder can then replace a less-talented or unmotivated management team. The bidder profits when the new management team gets results, which can come in the form of improved corporate performance, higher profits, and, ultimately, higher share prices. The importance of the market for corporate control is very different across countries due to a number of historical and institutional factors. As Jensen (1993) states, the failure of the internal ...