In a competitive marketplace, if managers deviate too far from making decisions that are consistent with stockholder wealth maximization, they risk being disciplined by the market. Part of this discipline involves the threat of being taken over by groups who are more aligned with stockholder interests.

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In a competitive marketplace, the threat of being taken over by groups who are more aligned with stockholder interests acts as disciplining factor and keeps managers in check, preventing them from deviating from decisions that maximize stockholder wealth.

In a Competitive Marketplace, If Managers Deviate Too Far from Making