Does the Mandatory Bid Rule Add Value to Target Shareholders?

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