The Corporate Governance Endgame – An Economic Analysis of Minority Squeeze-Out Regulation in Germany

47 Pages Posted: 10 Jun 2012 Last revised: 31 Jan 2014

See all articles by Ettore Croci

Ettore Croci

Catholic University of the Sacred Heart of Milan

Olaf Ehrhardt

University of Applied Sciences Stralsund

Eric Nowak

Swiss Finance Institute; University of Lugano

Date Written: July 31, 2013

Abstract

This paper examines minority squeeze-outs and their regulation in Germany, a country where majority shareholders have extensively used this tool since its introduction in 2002. Using unique data on court rulings and compensations, we analyze a sample of 324 squeeze-outs of publicly listed companies from 2002 to 2011. Large firms with foreign large shareholders are the most likely to be delisted. Positive stock price performance increases the likelihood of a squeeze-out, but operating performance has the opposite effect. Stock prices react positively to squeeze-out announcements, in particular when the squeeze-out does not follow a previous takeover offer. Nearly all squeeze-outs are legally challenged by minority shareholders, either with an action of avoidance or with an appraisal procedure (or both). We find that additional cash compensation is larger in appraisal procedures, but actions of avoidance are completed in less time and offer higher annualized returns. Overall, our evidence suggests that challenging the cash compensation offered in a squeeze-out delivers high returns for minority investors, net of opportunity costs.

Keywords: Corporate Governance, Investor protection, Event studies, Squeeze-outs, Germany

JEL Classification: G14, G34, G38, K22

Suggested Citation

Croci, Ettore and Ehrhardt, Olaf and Nowak, Eric, The Corporate Governance Endgame – An Economic Analysis of Minority Squeeze-Out Regulation in Germany (July 31, 2013). Available at SSRN: https://ssrn.com/abstract=2080745 or http://dx.doi.org/10.2139/ssrn.2080745

Ettore Croci (Contact Author)

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Olaf Ehrhardt

University of Applied Sciences Stralsund ( email )

Zur Schwedenschanze 15
D-18435 Stralsund
United States

Eric Nowak

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of Lugano ( email )

Via Buffi 13
CH-6900 Lugano
Switzerland
+41-91-9124-637 (secr. -712) (Phone)
+41-91-9124-647 (Fax)

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