A Simple Theory of Takeover Regulation in the United States and Europe
University of Genoa - Law School; European Corporate Governance Institute (ECGI)
Geoffrey P. Miller
New York University School of Law
October 30, 2009
Cornell International Law Journal, Forthcoming
ECGI - Law Working Paper No. 139/2010
NYU Law and Economics Research Paper No. 09-42
This paper presents a simple model of takeover regulation in a federal system. The theory has two parts. First, the model predicts that the rules applicable at more general political levels will be more favorable to takeover bids than will the rules applicable at local levels. The reason is that unlike bidders, who do not know ex ante where they will find targets, targets can concentrate their political activities knowing that the law of their jurisdiction will apply to any attempt to take them over. On the other hand, at more general political levels this advantage for target firms disappears, so the rules are expected to be less target-friendly. This is in fact the pattern we observe both in the United States and the European Union. Second, the model predicts that rules on takeovers will reflect the degree of concern that targets have about potential hostile bids. Where firms are well-protected against unfriendly takeovers – for example, in jurisdictions where companies are under family control – takeover regulation is likely to be less target-friendly than in jurisdictions where potential targets are more exposed to a hostile acquisition. This pattern is also observed in takeover regulation.
Number of Pages in PDF File: 49
Date posted: October 30, 2009 ; Last revised: January 13, 2010
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