Mandatory Bids in China: You Can Lead a Horse to Water, But You Can't Make Him Drink
41 Pages Posted: 15 Nov 2018 Last revised: 25 Jan 2019
Date Written: November 2, 2018
This paper studies mandatory bids in China against an institutional backdrop of restrictive IPO requisites. We find that virtually no shares held by external shareholders are tendered in mandatory bids for all the remaining shares. As for factors contributing to the failure of mandatory bids in China, we find that mandatory bidders press down their bid prices, and probably manipulate target stock prices. We also document that the market responds favorably to the announcement of mandatory bids. Our preliminary evidence shows that such rewarding responses are, at least in part, attributable to the value created by new controllers after mandatory bids via improved operational performance of target companies. Our research is among the earliest empirical works on the mandatory bid rule in a particular jurisdiction, and provides evidence for the first time to the theoretical prediction that mandatory bids induce efficient transfers of corporate control even if noncontrolling shareholders retain their shares.
Keywords: tender offer, mandatory bids, transfer of corporate control, mergers and acquisitions, IPO
JEL Classification: K22, G34
Suggested Citation: Suggested Citation