Does Mandatory Bid Rule Discourage Acquisitions above the Threshold?

Abstract

Our study, which leverages the staggered adoptions of the mandatory bid rule (MBR) globally, challenges the prevailing belief that this rule increases acquisition costs and hinders takeovers. Our findings suggest that this belief may be overstated. Firstly, we reconfirm the findings of Kim, Kim, and Lee (2023), using a more refined sample and alternative model specifications, showing that the MBR reduces the control premium – the critical determinant of the overall acquisition cost and an indicator of private benefits an acquirer will likely expropriate post-takeover. More importantly, our data does not support the idea that these results are merely due to self-selection. Our discretechoice model shows that the likelihood of post-acquisition ownership exceeding the threshold does not significantly decrease after implementing the MBR. Additionally, our analyses indicate that the mandatory bid rule does not reduce the number of transactions that exceed the threshold.

Keywords: corporate takeovers, equal opportunity rule, mandatory bid rule, cost of acquisition, control premium, private benefits of control, post-acquisition ownership, self-limitation mechanism, deal frequency

JEL Classification: G30, G32, G34, G38