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The Structure and Regulation of Financial Markets$
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Peter D. Spencer

Print publication date: 2000

Print ISBN-13: 9780198776093

Published to Oxford Scholarship Online: October 2011

DOI: 10.1093/acprof:oso/9780198776093.001.0001

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The Equity Market and Managerial Efficiency

The Equity Market and Managerial Efficiency

(p.137) 7 The Equity Market and Managerial Efficiency
The Structure and Regulation of Financial Markets

Peter d. Spencer

Oxford University Press

An equity or share represents a portion of a company’s value and a claim to share the dividend. The previous three chapters depend upon the assumption that a company’s fundamental value is not influenced by its share price. This chapter delves into ways wherein the stock market can influence corporate efficiency. It considers equity as a contract in which the management agrees to work for shareholders to maximize profits and dividends. The relationship between equity prices and managerial efficiency, which allows efficiency to affect prices and options and stock holdings to motivate management, is focused on in this chapter. Practically, it gives answers to corporate takeovers, in spite of the problems of market abuse and short-term termism, with which these are associated. The reason behind such is that the threat of takeover provides a backstop mechanism for ensuring efficiency when monitoring, incentive, and other devices fail.

Keywords:   equity market, equity, stock market, corporate efficiency, equity prices, management efficiency, corporate takeovers

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