Why Higher Takeover Premia Protect Minority Shareholders

Posttakeover moral hazard by the acquirer and free-riding by the target shareholders lead the former to acquire as few shares as necessary to gain control. As moral hazard is most severe under such low ownership concentration, inefficiencies arise in successful takeovers. Moreover, share supply is shown to be upward-sloping. Rules promoting ownership concentration limit both agency costs and the occurrence of takeovers. Furthermore, higher takeover premia induced by competition translate into higher ownership concentration and are thus beneficial. Finally, one share one vote and simple majority are generally not optimal, and socially optimal rules need not emerge through private contracting