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Feb 02 2017

Takeover law to protect shareholders: Increasing efficiency or merely redistributing gains?

Journal of Corporate Finance, Volume 43, 2017, Pages 288–315. Accepted manuscript available here.

with Ying Wang

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 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, whilst 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.

Corrigendum

The calculation of index values in Table 3 (‘Takeover law index for European countries, 1986–2010’) contains an error. The correct table can be downloaded here (Excel version here).

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