Barbarians in Chains - Takeover Regulation and Minority Shareholder Wealth

This article proposes a model that formalises the trade-off minority shareholders of corporate raiders face with respect to the adoption of a mandatory tender offer after a shift in control. Under reasonable distributional assumptions about control and security benefits the model suggest that minority shareholders profit from the adoption of the mandatory bid rule. A subsequent empirical study supports this Takeover Code, which introduced the mandatory bid rule in 1995. A fully efficient maximum likelihood estimator is derived for a trivariate regression model that estimates characteristics of corporate acquirers, takes account of the endogeneity of the acceptance decision, and explains the abnormal event-period returns.