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Finance pp 252–264Cite as

Palgrave Macmillan

Takeovers and The Stock Market

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Abstract

In a market economy the stock exchange has a triple role, first to pool together society’s savings dispersed among individual savers; second to channel selectively these savings to companies with the best investment prospects, and third to encourage the efficient use of assets embodying past savings. Two interrelated mechanisms are involved. A primary market mechanism, whereby new issues of shares are made by companies wishing to raise funds, and a secondary market mechanism whereby trade in the existing shares of companies is carried out. A company whose equities are traded at a relatively low price will find it relatively expensive or impossible to raise new funds in the primary market. It may also be subject to the threat of a takeover in which a majority ownership stake in its equity is acquired by another company whose objective is to change policies to improve the stock price. Management teams may thus compete in a market for corporate control, and takeovers may then be interpreted as a central part of the stock market selection process.

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Authors
  1. Alan Hughes
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  2. Ajit Singh
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Editor information

John Eatwell Murray Milgate Peter Newman

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© 1989 Palgrave Macmillan, a division of Macmillan Publishers Limited

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Hughes, A., Singh, A. (1989). Takeovers and The Stock Market. In: Eatwell, J., Milgate, M., Newman, P. (eds) Finance. The New Palgrave. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-20213-3_29

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