Index Fund and ETF Ownership and the German Market for Corporate Control

Abstract

If a bidder launches a takeover offer for a listed company being part of a stock market index, then index funds and exchange traded funds (ETF) as shareholders of this company cannot easily tender their shares without losing track of the index. This paper analyzes the impact of index fund and ETF ownership on the success of takeover offers in Germany. Based on a sample of 323 takeover offers of publicly listed German companies between 2006 and 2018, we document a significant negative impact of index fund and ETF ownership on takeover success. The fraction of outstanding shares eventually being tendered is decreasing with an increase in the stake of index funds and ETF: a one standard deviation increase in pre-offer index fund and ETF ownership reduces the fraction of outstanding shares gained by the bidder by 4.5 percentage points. For control-taking takeover bids with a bidder’s toehold below 30% this value increases to 9.9 percentage points. Thus, our results suggest the increasing importance of index funds and ETF to weaken the German market for corporate control.

Keywords: M&A, success determinants, takeover offer, ownership structure, index fund, ETF

JEL Classification: G11, G24, G32, G34, G38