Takeover regulation to protect shareholders: Wealth creation or wealth destruction?

Article English OPEN
Wang, Ying ; Lahr, Henry (2015)

Takeover regulation is fundamental to the efficient workings of the market for corporate control since it affects the size and distribution of expected gains to shareholders of targets and acquirers. To investigate the impact of takeover regulation on shareholders’ wealth distribution, we first construct a dynamic takeover law index consisting of six legal provisions for major European countries. Our index reveals that takeover law in the European Union has changed substantially over the past 25 years. We further examine the wealth effects of\ud takeover law in European takeovers between 1986 and 2010. Our empirical results suggest that the effect of takeover law on target announcement returns and takeover premiums is positive, economically large, and statistically significant. We also find evidence that stricter takeover law does not reduce the returns to bidders. Overall, the effect of takeover law on total wealth effects from mergers and acquisitions is significantly positive. Finally, in terms of the components of our takeover law index, we find that the mandatory bid rule significantly\ud increases the takeover premium, target announcement returns and combined returns; the ownership disclosure rule leads to higher target announcement returns and higher combined returns; whilst the fair-price rule and the squeeze-out rights rule may reduce the total gain\ud enjoyed by the combined companies.
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    34 references, page 1 of 4

    3.2 The development of EU takeover laws from 1986 to 2010 The Law of 2 March 1989; Takeover Decree 1989; Companies Act 1995; Takeover Act 2007; Takeover Decree 2007; Transparency Law 2007. Current regulator: The Belgian Banking, Finance and Insurance Commission (CBFA).

    Civil Code 1963; Commercial Code 1991; Commercial Code 1996; Commercial Code 2000; Capital Market Act 2004; Takeover Law 2008. Current regulator: The Czech National Bank (CNB).

    Companies Act 1985; Code of Ethics 1987; Securities Trading Act 1995; Securities Trading Act 1999; Order on Takeover Bids 2005; Takeover Act 2006; Companies Act 2006; Securities Trading Act 2008; Companies Act 2009. Current regulator: the Danish Financial Supervisory Authority (FSA).

    Companies Act 1978; Securities Market Act 1989; Securities Market Act 1993; Companies Act 1997; Securities Market Act 1999; Securities Market Act 2006; Companies Act 2006. Current regulator: Finnish Financial Supervision Authority (FSA).

    Act on Commercial Companies 1966; SEC Decision 1981, Act related to Stock Companies Interests 1985; Act on Commercial Companies 1985; Act on Savings 1987; Financial Market Act 1989; Stock Exchange Order on Takeover Bids 1992; Act on Commercial Companies 2000; Commercial Code 2000; Takeover Act 2006; Order of AMF 2006. Current regulator: Authority of Financial markets (AMF).

    Companies Act 1965; Securities Trading Act 1994; Takeover Code 1995; Takeover Act 2001; Takeover Offer Regulation 2001; Takeover Act 2006; Transparency Directive Implementation Act 2007. Current Regulator: Federal Financial (BaFin).

    Companies Act 1920; Decree on Information Disclosure 1992; Stock Exchange Decision 2000; Takeover Decision 2002; Takeover Act 2006; Transparency Law 2007. Current Regulator: The Hellenic Capital Markets Commission (CMC).

    Companies Act 1963; the UK takeover law index for the period 1986-1996; Companies Act 1990; Takeover Act 1997; Takeover Regulations 2006; Transparency Regulation 2007; Takeover Rules 2007; Transparency Rules 2009. Current regulator: The Irish Takeover Panel.

    Securities Market Law 1974; Public Offer Regulation 1992; Financial Act 1998; Amendment of Consolidated Financial Act 2007. Current regulator: National Commission for Companies and Stock Exchange (CONSOB).

    Luxembourg Companies Act 1915; Companies Act 1987; Law on Information Disclosure in a Listed Company 1992; Takeover Act 2006; Transparency law 2008. Current regulator: Luxembourg Financial Services Authority (CSSF).

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