42 Pages Posted: 23 Feb 2014 Last revised: 11 Apr 2017
Date Written: April 10, 2017
I investigate whether the implementation of the mandatory bid rule affects takeover announcement returns. I use a difference-in-differences approach and the staggered adoption of the mandatory bid rule across 17 EU member countries as a quasi-experimental setup. I find that for takeovers with more agency conflicts, the implementation of the rule decreases target returns. The driving mechanism is a decrease in the frequency of fully cash-financed transactions. After the adoption of the rule, acquirers complete takeovers with similar synergies but are more likely to use stock-financing leading to a decrease in target returns and no change in acquirer returns.
Keywords: mandatory bid rule, takeover regulation,agency conflicts
JEL Classification: G32, G34, G38
Suggested Citation: Suggested Citation