The Optimality of the Mandatory Bid Rule
AbstractA recent legislative directive from the Commission of the European Community proposes and enactment of a Mandatory Bid Rule (MBR): a bidder trying to acquire control of a firm should be required to extend the offer for all shares of the firm. This paper 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.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 50.
Length: 34 pages
Date of creation: Mar 1995
Date of revision:
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Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
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Takeovers; corporate finance; corporate governance; auctions regulations;
Find related papers by JEL classification:
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
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