Lecture 6

Question 1

What is the difference between Mergers and Acquisitions?

Answer 1

Merger -> between two equals
Acquisitions = takovers
- Friendly takeover
- Hostile takeover

Question 2

What is a reason why hostile takeovers occur?

Answer 2

To threat managers who do not maximize shareholder value

Question 3

What are other anti-takeover mechanisms?

Answer 3

1. Golden shares held by government
2. Shares with super voting rights concentrated in the hands of managers or founding families

Question 4

Why do CEOs often resist takeovers?

Answer 4

1. Job security
2. Protecting company interests

Question 5

Explain the white night defense mechanisms

Answer 5

Find a friendlier buyer

Question 6

What can shareholders do in the case of a hostile takeover?

Answer 6

1. Proxy contests -> when shareholders want to replace management
2. Shareholder proposals -> more modest form of proxy contest

Question 7

What are the challenges of M&A?

Answer 7

1. Legal challenges
2. Cultural differences
3. Other challenges -> social costs

Question 8

Institutional investors need some guidance on the corporate governance quality of firms for?

Answer 8

1. Screening
2. Monitoring
3. Proxy guidance

Question 9

What is the G-index and what does it argue?

Answer 9

Governance index -> the lower the G the better the shareholder rights, therefore higher governance quality

Question 10

What are the limitations to corporate governance indices?

Answer 10

May have some unidentified factors which are correlated to governance quality

Question 11

What does the E-index measure?

Answer 11

Higher E-index = more entrenchment = less shareholder power

Question 12

What is the difference between the g & e index?

Answer 12

Both about corporate governance
- E index is a subset and focuses on managerial power and entrenchment

Question 13

What G & E index do you want as a manager and shareholder?

Answer 13

Manager -> high G & E index
Shareholder -> low G & E index