Contests for corporate control often create a conflict between a legal principle, the business judgment rule (BJR), and an economics principle, the efficient market hypothesis (EMH). The BJR focuses on the process of decision making and requires managers to be guided by their integrity and diligence. The EMH focuses on outcomes and expects decisions to be guided by stock prices. Ideally the principles do not conflict, but when they do, when the market disagrees with managers' decisions, it is important to understand why. This article discusses the principles, why they sometimes conflict, and circumstances when one should outweigh the other.
CitationDownload as .RIS
MCB UP Ltd
Copyright © 1995, MCB UP Limited