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The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

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Chapter 9: Michael Jensen Gets Corporations to Obey the Market

The efficient market meets corporate America. Hostile takeovers and lots of talk about shareholder value ensue.

The efficient market hypothesis is a theory of financial markets, and its initial impact was on financial markets and those who make their living off them. But the securities traded on markets are generally connected to the real world. Among the most direct of those connections are those between stocks and corporations. And starting in the 1970s, the efficient market idea began to find its way into corporate America.

The first modern corporations were special cases, created by acts of parliament in the seventeenth-century Netherlands and United Kingdom to enable specific ...

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