Document Type
Conference Proceeding
Publication Title
Chicago Kent Law Review
Publication Date
1-2024
Page Number
7
Keywords
corporate law, macroeconomic theory, agency costs
Disciplines
Agency | Commercial Law | Law
Abstract
The theme of this Symposium takes me back more than thirty years to work I did on corporations and human capital at the Brookings Institution in the 1990s. Although I have been on the faculty of law schools since 2000, I am not a lawyer, and in fact, never went to law school. I did my Ph.D. in economics, and I wrote my dissertation on merger waves-in particular, I developed a macroeconomic theory to explain the wave of corporate mergers and takeo- vers that happened in the 1980s. The most prominent and popular idea about takeovers at the time was that corporate takeovers were driven by runaway agency costs that caused the shares of target firms to trade at prices well below their potential value, opening up room for savvy investors to bid for control, and make money by reducing the "agency costs" in the acquired firms. This theory never seemed right to me because historical data suggests that corporate mergers had mostly occurred in distinct waves over the prior century. I couldn't think of any good reason why agency costs, or any other form of bad management behavior, would happen in waves, or be cyclical. Moreover, many of the mergers of the 1980s involved substantial financial restructuring. Why was there such a sudden surge of hostile takeovers and leveraged buyouts in the 1980s, when these sorts of transactions had not hap- pened to a significant extent in earlier decades? Could it be that bad manage- ment happens in waves?
Recommended Citation
Margaret Blair,
Thoughts on Corporate Law and the Problem of Human Capital, 99 Chicago Kent Law Review. 7
(2024)
Available at: https://scholarship.law.vanderbilt.edu/faculty-publications/1639