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Who writes the rules for hostile takeovers, and why? - The peculiar divergence of US and UK takeover regulations

Author

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  • John Armour
  • David A. Skeel, Jr.

Abstract

Hostile takeovers are commonly thought to play a key role in rendering managers accountable to dispersed shareholders in the "Anglo-American" system of corporate governance. Yet surprisingly little attention has been paid to the very significant differences in takeover regulation between the two most prominent jurisdictions. In the UK, defensive tactics by target managers are prohibited, whereas Delaware law gives US managers a good deal of room to maneuver. Existing accounts of this difference focus on alleged pathologies in competitive federalism in the US. In contrast, we focus on the "supply-side" of rule production, by examining the evolution of the two regimes from a public choice perspective. We suggest that the content of the rules has been crucially influenced by differences in the mode of regulation. In the UK, self-regulation of takeovers has led to a regime largely driven by the interests of institutional investors, whereas the dynamics of judicial law-making in the US have benefited managers by making it relatively difficult for shareholders to influence the rules. Moreover, it was never possible for Wall Street to "privatize" takeovers in the same way as the City of London, because US federal regulation in the 1930s both pre-empted self-regulation and restricted the ability of institutional investors to coordinate.

Suggested Citation

  • John Armour & David A. Skeel, Jr., 2006. "Who writes the rules for hostile takeovers, and why? - The peculiar divergence of US and UK takeover regulations," Working Papers wp331, Centre for Business Research, University of Cambridge.
  • Handle: RePEc:cbr:cbrwps:wp331 Note: PRO-2
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    File URL: https://www.cbr.cam.ac.uk/fileadmin/user_upload/centre-for-business-research/downloads/working-papers/wp331.pdf
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    References listed on IDEAS

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    1. Philippe Aghion & Oliver D. Hart & John Moore, 1994. "The Economics of Bankruptcy Reform," NBER Chapters,in: The Transition in Eastern Europe, Volume 2: Restructuring, pages 215-244 National Bureau of Economic Research, Inc.
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    4. repec:hrv:faseco:30728046 is not listed on IDEAS
    5. Schwartz, Alan, 1997. "Contracting about Bankruptcy," Journal of Law, Economics, and Organization, Oxford University Press, vol. 13(1), pages 127-146, April.
    6. John Armour, 2006. "Should we redistribute in insolvency," Working Papers wp319, Centre for Business Research, University of Cambridge.
    7. Julian Franks & Oren Sussman, 2005. "Financial Distress and Bank Restructuring of Small to Medium Size UK Companies," Review of Finance, Springer, vol. 9(1), pages 65-96, March.
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    More about this item

    Keywords

    Hostile takeovers; History of corporate law; Comparative corporate law; Self-regulation; Institutional investors; Evolution of law; Anglo-American corporate governance;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • N40 - Economic History - - Government, War, Law, International Relations, and Regulation - - - General, International, or Comparative

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