One of the most vexing historical debates in corporate law concerns whether regulations or markets are better equipped to address managerial agency costs within public corporations.1 Although corporate law scholars have traditionally favored immutable legal imperatives as an elixir for misaligned incentives, 2 an increasing number of commentators place greater faith in market mechanisms to accomplish the same task.3 While many such mechanisms operate simultaneously (including markets for output,4 labor,5 and capital6), perhaps none has received more attention than the oft-celebrated "market for corporate control" as a means for achieving deterrence. 7 By providing a constant and credible risk of hostile acquisitions, the takeover market creates a powerful incentive for managers to constrain their own rapacity in the interests of self-preservation. 8 Consequently, the argument goes, a principal normative aim of corporate law should be to ensure that the market for corporate control remains active, robust, and competitive.
Stephen J. Choi & Eric Talley,
Playing Favorites with Shareholders,
S. Cal. L. Rev.
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/1000