The Optimality of the Mandatory Bid Rule

Clas Bergström (), Peter Högfeldt () and Johan Molin
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Clas Bergström: Dept. of Finance, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Peter Högfeldt: Dept. of Finance, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Johan Molin: Dept. of Finance, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden

No 50, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: A recent legislative directive from the Commission of the European Community proposes and enactment of a Mandatory Bid Rule (MBR): a bidder trying to acquire control of a firm should be required to extend the offer for all shares of the firm. This paper 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.

Keywords: Takeovers; corporate finance; corporate governance; auctions regulations (search for similar items in EconPapers)
JEL-codes: G34 G38 (search for similar items in EconPapers)
Pages: 34 pages
Date: 1995-03
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0050

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