Buyouts in Large Companies

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Abstract
We consider legal rules that determine the price at which minority shareholders can be excluded from the corporate enterprise after a change in control. These rules affect investment after such a change, as well as the probability of the change itself. Our principal results are that minority shareholders should be given the value that their interest would have had were no later investment made and that this rule is best implemented in large companies by awarding the minority the preinvestment market value of their shares. The former aspect of our proposal is consistent with much current law but is rejected by many modern law reformers; the latter aspect of our proposal is novel.
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