Does the Mandatory Bid Rule Add Value to Target Shareholders?

43 Pages Posted: 23 Feb 2014 Last revised: 29 Jan 2019

See all articles by Sapnoti Eswar

Sapnoti Eswar

School of Economics and Finance, University of St Andrews

Date Written: May 8, 2018

Abstract

I investigate whether implementation of the mandatory bid rule – the rule that grants all shareholders the right to participate in a takeover transaction at equal terms – affects target announcement returns. I use a difference-in-differences approach and the staggered adoption of the rule across 15 European countries. I find that the rule change leads to higher target returns. In full transactions, better accounting standards and share-holder protection norms of the acquirer leads to higher target returns. In majority transactions, greater value transfer from acquirers with weak accounting standards leads to higher target returns. I find weak evidence of overpayment by acquirers.

Keywords: mandatory bid rule, takeover regulation, accounting standards, shareholder protection

JEL Classification: G32, G34, G38

Suggested Citation

Eswar, Sapnoti, Does the Mandatory Bid Rule Add Value to Target Shareholders? (May 8, 2018). Available at SSRN: https://ssrn.com/abstract=2399484 or http://dx.doi.org/10.2139/ssrn.2399484

Sapnoti Eswar (Contact Author)

School of Economics and Finance, University of St Andrews ( email )

Castle Cliff
St Andrews
St Andrews, KY16 9AR
United Kingdom

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