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State Regulation of Takeovers and Shareholder Wealth: The Case of New York's 1985 Takeover Statutes

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  • Laurence Schumann

Abstract

Past studies of takeover regulations have found that such rules increase the premiums paid to the shareholders of successfully acquired targets. Jarrell and Bradley argue that these higher premiums harm shareholders by discouraging takeover activity and protecting inefficient managers. Bebchuk argues that the higher premiums do not significantly reduce the number of takeovers so that shareholders benefit, on average, from the higher premiums paid in successful acquisitions. This article uses the "event study" method to measure the net effect of two takeover statutes passed by the New York State Legislature in 1985. The results support the conclusion of Jarrell and Bradley that, despite the higher premiums paid to successfully acquired target shareholders ex post, these laws, on average, harm shareholders ex ante.

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  • Laurence Schumann, 1988. "State Regulation of Takeovers and Shareholder Wealth: The Case of New York's 1985 Takeover Statutes," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 557-567, Winter.
    • Handle: RePEc:rje:randje:v:19:y:1988:i:winter:p:557-567
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    Cited by:

    1. Alexander, John C. & Spivey, Michael F. & Wayne Marr, M., 1997. "Nonshareholder constituency statutes and shareholder wealth: A note," Journal of Banking & Finance, Elsevier, vol. 21(3), pages 417-432, March.
    2. Brown, Jeffrey R. & Cummins, J. David & Lewis, Christopher M. & Wei, Ran, 2004. "An empirical analysis of the economic impact of federal terrorism reinsurance," Journal of Monetary Economics, Elsevier, vol. 51(5), pages 861-898, July.
    3. Cain, Matthew D. & McKeon, Stephen B. & Solomon, Steven Davidoff, 2017. "Do takeover laws matter? Evidence from five decades of hostile takeovers," Journal of Financial Economics, Elsevier, vol. 124(3), pages 464-485.
    4. Gioia Pescetto, 2007. "Regulation and systematic risk: the case of the water industry in England and Wales," Applied Financial Economics, Taylor & Francis Journals, vol. 18(1), pages 61-73.
    5. Scott W. Barnhart & Michael F. Spivey & John C. Alexander, 2000. "Do firm and state antitakeover provisions affect how well CEOs earn their pay?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 21(8), pages 315-328.
    6. Kose John & Yuanzhi Li & Jiaren Pang, 2017. "Does Corporate Governance Matter More for High Financial Slack Firms?," Management Science, INFORMS, vol. 63(6), pages 1872-1891, June.
    7. Stefano Paleari & Renato Redondi, 2005. "Regulation Effects on Company Beta Components," Bulletin of Economic Research, Wiley Blackwell, vol. 57(4), pages 317-346, October.
    8. Robin Nuttall, 1999. "An Empirical Analysis of the Effects of the Threat of Takeover on UK Company Performance," Economics Series Working Papers 1999-W05, University of Oxford, Department of Economics.

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