|Publication||Legal shareholder rights and acquirer returns|
University of Hamburg, University of Cambridge
Mergers and acquisitions, market for corporate control, corporate governance, investor protection, shareholder rights, acquirer returns, bidder wealth effects, law and finance, European Takeover Directive
We examine the relationship between legal shareholder rights and acquirer returns. Europe is an ideal context to explore this link because various institutional differences and the recent regulatory integra-tion of takeover markets make the European Takeover Directive (ETD) a suitable focus for a natural experiment. We show that an improvement of legal shareholder rights entails an increase in acquirer returns, supporting the hypothesis that strong legal shareholder rights confine the discretion of corpo-rate insiders, leading to better investment decisions. However, our results also indicate that this value creation is partly consumed by the costs of the reform. We find that the gains from improving legal shareholder rights are decreasing in the relative disruption of prevailing governance practices.