The Optimality of the Mandatory Bid Rule

Clas Bergstrom, Peter Hogfeldt and Johan Molin

The Journal of Law, Economics, and Organization, 1997, vol. 13, issue 2, 433-51

Abstract: A recent legislative directive from the Commission of the European Community proposes the enactment of a mandatory bid rule (MBR) whereby a bidder trying to acquire control of a firm should be required to extend the offer for all shares of the firm. This article analyzes how adoption of such a rule affects shareholder wealth and allocative efficiency. We derive a general design principle which precisely characterizes when the MBR is in the interest of the shareholders and when it is not, and evaluate the MBR as a policy instrument. The design principle is shown to closely approximate the choice of the optimal bidform. Copyright 1997 by Oxford University Press.

Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:oup:jleorg:v:13:y:1997:i:2:p:433-51

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