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The Optimality of the Mandatory Bid Rule

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Author Info

  • 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)

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    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.

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    Bibliographic Info

    Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 50.

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    Length: 34 pages
    Date of creation: Mar 1995
    Date of revision:
    Handle: RePEc:hhs:hastef:0050

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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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    Related research

    Keywords: Takeovers; corporate finance; corporate governance; auctions regulations;

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