Shareholder Protection, Compulsory Acquisition and the Efficiency of the Takeover Process

Yarrow, George

doi:10.2307/2098478

Cited by 63 publications

(28 citation statements)

References 8 publications

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“…Finally, the present paper's analysis of freeze-out rules is closely related to the analysis in Yarrow (1985), who shows that the CAL can solve the free-rider problem. When an offer conditional on acceptance of the freeze-out fraction succeeds, any remaining minority shareholder will be forced to sell his shares on the terms of the original offer.…”

Section: Relation To the Literaturementioning

confidence: 62%

Why Higher Takeover Premia Protect Minority Shareholders

Burkart

Gromb

Panunzi

1998

Journal of Political Economy

309

144

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Posttakeover moral hazard by the acquirer and free-riding by the target shareholders lead the former to acquire as few shares as necessary to gain control. As moral hazard is most severe under such low ownership concentration, inefficiencies arise in successful takeovers. Moreover, share supply is shown to be upward-sloping. Rules promoting ownership concentration limit both agency costs and This project was initiated when all three authors were at the Financial Markets Group at the London School of Economics. We have benefited from comments by Erik Berglöf, Elazar Berkovitch, Patrick Bolton, Arnoud Boot, Gilles Chemla, Jan Ericsson, Abby Innes, Ronen Israel, Kjell Nyborg, Marco Pagano, Ailsa Röell, Jean Tirole, Luigi Zingales, the editor, an anonymous referee, and seminar participants in Barcelona (Institut d'Anàlisi Econò mica), Basel, Boston University, Bologna, Chicago, the European winter meeting of the Econometric Society, the 1995 meeting of the European Summer Symposium in Financial Markets in Gerzensee, Harvard, London School of Economics, Madrid (Centro de Estudios Monetarios y Financieros), Milan (Bocconi), Massachusetts Institute of Technology, Naples, Nordic Symposium on Corporate and Institutional Finance in Sandvika 1995, Pavia, and Stockholm (Stockholm School of Economics and Institute for International Economic Studies). Financial support from Universitá Bocconi (grant Struttura della proprietá azionaria, mercato dei capitali e regolamentazione) and Bankforskningsinstitutet (Burkart) is gratefully acknowledged. All remaining errors are our own. [ Journal of Political Economy, 1998, vol. 106, no. 1] © 1998 by The University of Chicago. All rights reserved. 0022-3808/98/0601-0003$02.50 172 higher takeover premia 173 the occurrence of takeovers. Furthermore, higher takeover premia induced by competition translate into higher ownership concentration and are thus beneficial. Finally, one share-one vote and simple majority are generally not optimal, and socially optimal rules need not emerge through private contracting.

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Section: Relation To the Literaturementioning

confidence: 62%

Why Higher Takeover Premia Protect Minority Shareholders

Burkart

Gromb

Panunzi

1998

Journal of Political Economy

309

144

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“…Prior theoretical and empirical work has focused heavily on the mandatory bid rule as the key provision in takeover law (Rossi and Volpin, 2004;Burkart and Panunzi, 2003;Nenova, 2003;Bebchuk, 1994), while others study the impact of ownership disclosure, squeeze-out rights, sell-out rights, and management neutrality in takeover regulation (Armour et al, 2007;Bebchuk, 2002;Burkart, 1999;Yarrow, 1985). Recognizing the importance of these provisions, European policymakers aimed to harmonize the European takeover market by including them in the EU Directive 2004/25/EC on takeovers.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…This rule can be used to control the freerider problem by bidders, thereby making value-increasing takeovers feasible (Yarrow, 1985). The counterpart of the squeeze-out rights rule is the sell-out rights rule, which offers minority shareholders the right to require the majority owner to buy them out at a certain level of shareholdings.…”

Section: Shareholder Protection In Takeoversmentioning

confidence: 99%

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

Wang

Lahr

2017

Journal of Corporate Finance

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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. KeywordsTakeover laws, Mergers and acquisitions, Shareholder protection, Announcement returns, EU takeover directive JEL classification G32, G34, G38, K22, O16 AcknowledgementsWe thank

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“…16 According to Yarrow (1985) and Maug (2004), the economic efficiency of the squeeze-out rule depends on how the price at which the minority shares are squeezed out is determined. For example, Maug's model predicts that economic efficiency worsens if minority shareholders extract higher premiums in squeeze-outs.…”

Section: 4mentioning

confidence: 99%

Corporate Governance Convergence: Evidence From Takeover Regulation Reforms in Europe

Goergen

2005

Oxford Review of Economic Policy

128

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Abstract:This paper contributes to the research on corporate governance by predicting the effects of European takeover regulation. In particular, we investigate whether the recent reforms of takeover regulation in Europe are leading to a harmonization of the national legislations. With the help of 150 corporate governance lawyers from 30 European countries, we collected the main changes in takeover regulation. We assess whether a process of convergence towards the Anglo-(American) corporate governance system has been started and we find that this is the case. We make predictions as to the consequences of the reforms for the ownership and control. However, we find that, while in some countries the adoption of a unified takeover code may result in dispersed ownership, in others it may further consolidate the blockholder-based system.

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Shareholder Protection, Compulsory Acquisition and the Efficiency of the Takeover Process

Cited by 63 publications

References 8 publications

Why Higher Takeover Premia Protect Minority Shareholders

Why Higher Takeover Premia Protect Minority Shareholders

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

Corporate Governance Convergence: Evidence From Takeover Regulation Reforms in Europe

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