Takeover law to protect shareholders: Increasing efficiency or merely redistributing gains?
Ying Wang and
Journal of Corporate Finance, 2017, vol. 43, issue C, 288-315
We construct a dynamic takeover law index using hand-collected data on legal provisions and empirically examine the effect of takeover regulation to protect shareholders on shareholder wealth for bidders and targets in a multi-country setting. We find that a stricter takeover law increases the wealth gains to the shareholders of the combined bidder and target firm, which suggests that stronger shareholder protection in the takeover bid process increases the efficiency of the takeover market. In contrast to our hypothesis, results show that stricter takeover law does not hurt bidders. Its effect on target announcement returns is significantly positive and economically large. Our findings on individual provisions suggest that the mandatory bid rule and ownership disclosure increase overall synergistic gains in takeovers, while the fair-price rule and squeeze-out rights may reduce them. Further results show that stricter takeover regulation increases competition in the market for corporate control and reduces the time to successful completion of a takeover bid, which explains increased combined wealth gains under stricter takeover regulation.
Keywords: Takeover laws; Mergers and acquisitions; Shareholder protection; Announcement returns; EU Takeover Directive (search for similar items in EconPapers)
JEL-codes: G32 G34 G38 K22 O16 (search for similar items in EconPapers)
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Working Paper: Takeover Law to Protect Shareholders: Increasing Efficiency or Merely Redistributing Gains? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:43:y:2017:i:c:p:288-315
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