Anchoring in takeovers under Mandatory Bid Rule: Evidence from an emerging market

This article documents the existence of an anchoring bias in the pricing and acceptance of takeover bids when the Mandatory Bid Rule applies and shows that the investors exploit the institutional and legal context at hand to derive new reference point prices for the target value. We use a comprehensive dataset covering all the takeover bids organized on the Romanian market for corporate control between 1998 and 2017. Our empirical analysis shows that the 52-week high price of the target serves as a salient anchor despite the frequent changes of the regulation aiming at improving the overall quality of corporate governance. The peculiar institutional framework in Romania allows us to factor in the analysis novel structural elements, like the pricing of privatization transactions conducted by the government outside the stock market and the trading made by insiders at the level of reference prices identified as fair by legal standards. After controlling for ownership and corporate governance attributes of targets, our main findings suggest that various market price components are strong predictors of both bid premiums and tender success. The tender decision depends also on the scope of expropriation perceived by minority shareholders of the target. Our study concludes that stronger capital market discipline is at least as important as the legal details of takeover regulation for insuring an effective protection of minority shareholders.