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Legal Investor Protection and Takeovers

Author

Listed:
  • MIKE BURKART
  • DENIS GROMB
  • HOLGER M. MUELLER
  • FAUSTO PANUNZI

Abstract

type="main"> This paper examines the role of legal investor protection for the efficiency of the market for corporate control when bidders are financially constrained. In the model, stronger legal investor protection increases bidders' outside funding capacity. However, absent effective bidding competition, this does not improve efficiency, as the bid price, and thus bidders' need for funds, increases one-for-one with the pledgeable income. In contrast, under effective competition for the target, the increased outside funding capacity improves efficiency by making it less likely that more efficient but less wealthy bidders are outbid by less efficient but wealthier rivals.

Suggested Citation

  • Mike Burkart & Denis Gromb & Holger M. Mueller & Fausto Panunzi, 2014. "Legal Investor Protection and Takeovers," Journal of Finance, American Finance Association, vol. 69(3), pages 1129-1165, June.
    • Handle: RePEc:bla:jfinan:v:69:y:2014:i:3:p:1129-1165
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    File URL: http://hdl.handle.net/10.1111/jofi.12142
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    Cited by:

    1. Burkart, Mike & Lee, Samuel & Petri, Henrik, 2020. "The Social Value of Debt in the Market for Corporate Control," CEPR Discussion Papers 15249, C.E.P.R. Discussion Papers.
    2. Dissanaike, Gishan & Drobetz, Wolfgang & Momtaz, Paul P., 2020. "Competition Policy and the Profitability of Corporate Acquisitions," Journal of Corporate Finance, Elsevier, vol. 62(C).
    3. Loyola, Gino & Portilla, Yolanda, 2020. "Optimal ownership structure and monitoring in entrepreneurial firms," Finance Research Letters, Elsevier, vol. 33(C).
    4. Acheson, Graeme G. & Campbell, Gareth & Turner, John D., 2016. "Common law and the origin of shareholder protection," eabh Papers 16-03, The European Association for Banking and Financial History (EABH).
    5. Gao, Ya & Liao, Chi & Zhang, Ying & Zhang, Zixu, 2021. "The role of investor protections on the value of investment banking relationships: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    6. Li, Chang & Yang, Lianxing, 2020. "Import to invest: Impact of cultural goods on cross-border mergers and acquisitions," Economic Modelling, Elsevier, vol. 93(C), pages 354-364.
    7. Graeme G Acheson & Gareth Campbell & John D Turner, 2019. "Private Contracting, Law and Finance," The Review of Financial Studies, Society for Financial Studies, vol. 32(11), pages 4156-4195.
    8. Lee, Dong Wook & Lee, Jee Eun & Sun, Lingxia, 2025. "Unbundling institutions for corporations," Global Finance Journal, Elsevier, vol. 67(C).
    9. Larrain, Borja & Tapia, Matías & Urzúa I., Francisco, 2017. "Investor protection and corporate control," Journal of Corporate Finance, Elsevier, vol. 47(C), pages 174-190.
    10. Christian At, 2015. "Shareholder versus Stakeholder Protection and Interest-Group Politics," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(3), pages 478-492, September.
    11. Liu, Ruiming & Si, Haiping & Miao, Miao, 2022. "One false step can make a great difference: Does corporate litigation cause the exit of the controlling shareholder?," Journal of Corporate Finance, Elsevier, vol. 73(C).
    12. Babarinde rene ADEROMOU & Mahmoudou Bocar SALL, 2019. "Minority investor protection and corporate governance practices," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 10(2), pages 102-117, December.
    13. Christian At, 2015. "Shareholder vs. Stakeholder Protection and Interest Group Politics," Post-Print halshs-01308188, HAL.
    14. Dissanaike, Gishan & Drobetz, Wolfgang & Momtaz, Paul P. & Rocholl, Jörg, 2021. "The Economics of Law Enforcement: Quasi-Experimental Evidence from Corporate Takeover Law," Journal of Corporate Finance, Elsevier, vol. 67(C).
    15. de La Bruslerie, Hubert, 2016. "Does debt curb controlling shareholders' private benefits? Modelling in a contingent claim framework," Economic Modelling, Elsevier, vol. 58(C), pages 263-282.
    16. Hong Zhu & Qi Zhu, 2016. "Mergers and acquisitions by Chinese firms: A review and comparison with other mergers and acquisitions research in the leading journals," Asia Pacific Journal of Management, Springer, vol. 33(4), pages 1107-1149, December.
    17. Cao, Xiaping & Cumming, Douglas & Goh, Jeremy & Wang, Xiaoming, 2019. "The impact of investor protection law on global takeovers: LBO vs. non-LBO transactions," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 59(C), pages 1-18.
    18. Shirasu, Yoko, 2018. "Long-term strategic effects of mergers and acquisitions in Asia-Pacific banks," Finance Research Letters, Elsevier, vol. 24(C), pages 73-80.
    19. repec:jaf:journl:v:10:y:2019:i:2:n:278 is not listed on IDEAS
    20. Ren, Yaru & Li, Lin & Tong, Wilson H.S. & Lam, Peter, 2024. "When acquirers are short on cash flow in M&A deals," International Review of Financial Analysis, Elsevier, vol. 94(C).
    21. Yaru Ren & Lin Li & Wilson H.S. Tong & Peter Lam, 2024. "When acquirers are short on cash flow in M&A deals," Post-Print hal-04562214, HAL.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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