How does the Enforcement of Takeover Law Affect Corporate Acquisitions? An Inductive Approach
47 Pages Posted: 30 May 2016 Last revised: 15 Jan 2019
Date Written: August 8, 2018
This paper examines the impact of takeover law enforcement on corporate acquisitions. We use the European Takeover Directive as a natural experiment, which harmonizes takeover law across countries, while leaving its enforcement to the discretion of individual countries. Following the recommendation in Karpoff and Whittry (2018), we adopt an inductive approach and find that acquirer returns increase in countries with changes in takeover law, driven by improved target selection and lower cost of financing. The increase in acquirer returns is lower in weak enforcement jurisdictions. Overall, takeover law can mitigate agency conflicts, but its true value depends on its enforcement.
Keywords: Mergers and acquisitions, acquirer returns, law and finance, takeover law, law enforcement
JEL Classification: G30, G34, G38, K20, K22
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