 Takeovers, shareholder litigation, and the free-riding problemMark Broere and Robin Christmann International Review of Law and Economics, 2021, vol. 65, issue C Abstract: When shareholders of a target firm expect a value improving takeover to be successful, they are individually better off not tendering their shares to the buyer and the takeover potentially fails. Squeeze-out procedures can overcome this free-riding dilemma by allowing a buyer to enforce a payout of minority shareholders and seize complete control of the target firm. However, it is often argued that shareholder litigation restores the free-riding dilemma. Applying a sequential takeover game, we examine the two standard legal remedies of shareholders, the ‘action of avoidance’ and the judicial ‘price fairness review’ and demonstrate that it is not shareholder litigation that brings back the free-riding dilemma, but rather the strategic gambling of buyers for lower prices and flaws in the design and application of squeeze-out laws. We also analyze a favorable change in jurisdiction of the German Federal Court and provide implications for legal policy. Keywords: Squeeze-out; Appraisals; Entire fairness; Judicial review; Takeover bids (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:irlaec:v:65:y:2021:i:c:s0144818820301642 DOI: 10.1016/j.irle.2020.105951 Access Statistics for this article International Review of Law and Economics is currently edited by C. Ott, A. W. Katz and H-B. Schäfer More articles in International Review of Law and Economics from Elsevier |
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