The Optimality of the Mandatory Bid Rule
AbstractA recent legislative directive from the Commission of the European Community proposes the enactment of a mandatory bid rule (MBR) whereby a bidder trying to acquire control of a firm should be required to extend the offer for all shares of the firm. This article analyzes how adoption of such a rule affects shareholder wealth and allocative efficiency. We derive a general design principle which precisely characterizes when the MBR is in the interest of the shareholders and when it is not, and evaluate the MBR as a policy instrument. The design principle is shown to closely approximate the choice of the optimal bidform. Copyright 1997 by Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Journal of Law, Economics and Organization.
Volume (Year): 13 (1997)
Issue (Month): 2 (October)
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- At, Christian & Burkart, Mike & Lee, Samuel, 2007.
"Security-Voting Structure and Bidder Screening,"
CEPR Discussion Papers
6241, C.E.P.R. Discussion Papers.
- Ken Bechmann & Johannes Raaballe, 2003. "A Regulation of Bids for Dual Class Shares. Implication: Two Sharesâ€”One Price," European Journal of Law and Economics, Springer, vol. 15(1), pages 17-46, January.
- Carvalhal da Silva, Andre & Subrahmanyam, Avanidhar, 2007. "Dual-class premium, corporate governance, and the mandatory bid rule: Evidence from the Brazilian stock market," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 1-24, March.
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