An Analysis of the Mandatory Bid Rule
The Mandatory Bid Rule (MBR) requires that any shareholder who either (i) establishes new control of a firm or (ii) takes over control by transfer of an old block position also extends an offer for the remaining shares at a fair price. For three different ownership structures, the paper analyzes the effect of implementation of a Mandatory Bid Rule on the value of the firm. Implicit in the decision to enact the MBR is a trade-off between a value increasing (decreasing) change in the frequency of takeovers and a value decreasing (increasing) effect due to a lower (higher) expected premium. For the ownership structure where a minority owner establishes now control, we demonstrate the general result that the negative probability effect dominates the positive premium effect, i.e. the value of the firm always decreases if a MBR is implemented. If instead the firm is controlled by a majority owner and control is transferred, we characterize the balance of the two ounter-acting effects in general. In particular, if the incumbent majortity owner enjoys larger private benefits of control than a potential buyer, we show that it is likely that enactment of the MBR lowers the value of the firm. This result contrasts with that obtained when the firm is atomistically held. In this case, if either the incumbent management team or the rival enjoy private benefits that are much larger than that of the counterparty, the adoption of the MBR is likely to increase the firm value.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||Nov 1994|
|Contact details of provider:|| Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden|
Phone: +46-(0)8-736 90 00
Fax: +46-(0)8-31 01 57
Web page: http://www.hhs.se/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:hhs:hastef:0032. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Helena Lundin)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.