Disclosure Regulation and Corporate Acquisitions
60 Pages Posted: 5 Jan 2019
Date Written: December 20, 2018
This paper examines the effect of disclosure regulation on the market for corporate control. We study the implementation of a recent European regulation imposing tighter disclosure requirements regarding the financial and ownership information provided by public firms. We find a substantial drop in the number of control acquisitions after the implementation of the regulation, a decrease that is concentrated in countries with more dynamic takeover markets. Consistent with the idea that the disclosure requirements increased acquisition costs, we also observe that, under the new disclosure regime, target (acquirer) stock returns around the acquisition announcement are higher (lower), and toeholds are substantially smaller. Overall, our evidence suggests that tighter disclosure requirements can impose significant acquisition costs on bidders and thus slow down the market for corporate control.
Keywords: disclosure regulation, market for corporate control, takeover laws, proprietary costs
JEL Classification: G34, G38, K22
Suggested Citation: Suggested Citation