A Simple Theory of Takeover Regulation in the United States and Europe

49 Pages Posted: 30 Oct 2009 Last revised: 13 Jan 2010

Guido Ferrarini

University of Genoa - Law Department and Centre for Law and Finance; European Corporate Governance Institute (ECGI)

Geoffrey P. Miller

New York University School of Law

Date Written: October 30, 2009

Abstract

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.

Suggested Citation

Ferrarini, Guido and Miller, Geoffrey P., A Simple Theory of Takeover Regulation in the United States and Europe (October 30, 2009). Cornell International Law Journal, Forthcoming; ECGI - Law Working Paper No. 139/2010; NYU Law and Economics Research Paper No. 09-42. Available at SSRN: https://ssrn.com/abstract=1497083

Guido Ferrarini (Contact Author)

University of Genoa - Law Department and Centre for Law and Finance ( email )

Via Balbi, 22
16126 Genova, 16100
Italy
+39 010 209 9894 (Phone)
+39 010 209 9890 (Fax)

HOME PAGE: http://www.clfge.org

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Geoffrey P. Miller

New York University School of Law ( email )

Center for the Study of Central Banks
40 Washington Square South
New York, NY 10012-1099
United States
212-998-6329 (Phone)
212-995-4590 (Fax)

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