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The Optimality of the Mandatory Bid Rule

Author

Listed:
  • Bergström, Clas

    (Dept. of Finance, Stockholm School of Economics)

  • Högfeldt, Peter

    (Dept. of Finance, Stockholm School of Economics)

  • Molin, Johan

    (Dept. of Finance, Stockholm School of Economics)

Abstract

A 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.

Suggested Citation

  • Bergström, Clas & Högfeldt, Peter & Molin, Johan, 1995. "The Optimality of the Mandatory Bid Rule," SSE/EFI Working Paper Series in Economics and Finance 50, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0050
    as

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    More about this item

    Keywords

    Takeovers; corporate finance; corporate governance; auctions regulations;
    All these keywords.

    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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