Takeover Law to Protect Shareholders: Increasing Efficiency or Merely Redistributing Gains?

Ying Wang and Henry Lahr

Working Papers from Centre for Business Research, University of Cambridge

Abstract: 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 combined wealth for bidders and targets, which suggests that stronger shareholder protection in the takeover bid process increases the efficiency of the takeover market. Contrary to our hypothesis, results show that stricter takeover law does not hurt bidders. Its effect on target announcement returns and takeover premiums is significantly positive and economically large. Our findings suggest that the mandatory bid rule and ownership disclosure increase synergistic gains in takeovers, whilst the fair-price rule and squeeze-out rights may reduce combined gains. Further results show that increased overall gains can be explained by greater competition in the market for corporate control and a shorter time to successful completion of a takeover under stricter takeover law.

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)
Date: 2016-12
New Economics Papers: this item is included in nep-cfn and nep-law
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Journal Article: Takeover law to protect shareholders: Increasing efficiency or merely redistributing gains? (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:cbr:cbrwps:wp486

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