The Impact of the EU Takeover Directive on Takeover Performance and Empire Building

52 Pages Posted: 29 Jan 2012 Last revised: 13 Nov 2012

See all articles by Mark Humphery-Jenner

Mark Humphery-Jenner

UNSW Business School; Financial Research Network (FIRN)

Date Written: January 27, 2012


This paper uses the EU Takeover Directive as a natural experiment to test when legal harmonization creates value, and to examine the impact of increased entrenchment on investment decisions. The EU promulgated the Takeover Directive in April 2004. The implementation deadline was May 2006. The goal was to encourage value-creating takeovers by harmonizing takeover laws across the EU. However, the takeover directive has received criticism for being vague and discretionary, and for entrenching managers. I hypothesize that because the directive hinders takeovers, it might increase managerial entrenchment and enable managers of EU-companies to make agency-motivated investments (or simply exercise less discipline). I find supportive evidence: after the directive, EU-companies make investments that are less profitable (as proxied by takeover returns) and that take longer to compete. Further, asset growth increased in treated companies following the takeover directive, suggesting that the additional entrenchment facilitates empire building.

Keywords: Takeover Directive,Takeovers, Legal Harmonization, European Union, Entrenchment

JEL Classification: G34, G38, K22

Suggested Citation

Humphery-Jenner, Mark, The Impact of the EU Takeover Directive on Takeover Performance and Empire Building (January 27, 2012). Journal of Corporate Finance, Vol. 18, No. 2, 2012, UNSW Australian School of Business Research Paper, Available at SSRN: or

Mark Humphery-Jenner (Contact Author)

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


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