This paper provides an economist's guide to the regulation of public tender offers. It argues that the common interpretation of takeovers as solely promoting economic efficiency does not bear closer scrutiny. The theoretical and empirical evidence are consistent with beneficial and adverse efficiency effects. As a result, neither an unreserved promotion nor a stringent curtailment of takeovers are adequate regulatory objectives. The paper identifies three core areas of regulation and analyzes within each subject field the impact of prevalent takeover rules. It argues that, first, the disclosure threshold is the primary means to influence the incentives of prospective acquirer. Second, target shareholder protection is a necessary measure to avoid an increase in the cost of equity financing. Third, all defensive measures have to be within the sole authority of the shareholders due to the aggravated agency conflict in (hostile) takeovers. Finally, the paper discusses whether firms should be subject to a compulsory takeover regulation or whether opt-out provisions should be allowed.
Download is not available
