It is widely agreed that stock market values of many large American corporations, particularly diversified ones, are substantially below their intrinsic values. This statement typically means that when such companies are restructured, usually but not always after being taken over, substantial increases in stock-market values are realized. Although there is broad agreement that restructuring is accompanied by an increase in shareholder wealth, there is not much evidence about why this is necessarily so. The purpose of this research is to analyze the determinants of the valuation of public corporations and the impact of hostile takeovers on their value. An important goal of this analysis is to distinguish between theories that suggest some companies are mismanaged from theories that suggest that corporations are under valued relative to their fundamental viability, and do not require any changes in management or operating strategies. Unlike many previous studies that focus exclusively on takeover targets, this analysis will combine a study of the targets of hostile takeovers with a more general analysis of the valuation of public companies in the stock market. This research is important because it will shed light on whether or not hostile takeovers tend to be in the public interest.
