A Guide to Takeovers: Theory, Evidence and Regulation

Abstract

The last decade witnessed an explosion of activity in the field of corporate takeovers, which ended in an environment of increased regulation of these transactions. These events have prompted extensive study into the causes for takeovers and the effects of their regulation. This article surveys and analyzes both the economic literature and the law in an attempt to determine which regulatory regimes make the most sense in light of the empirical evidence. Though no single theory is sufficient to explain all takeovers, the empirical evidence is most consistent with explanations of takeovers as value-maximizing events for target firm shareholders that enhance social efficiency. Economic learning and public policy, however, have not marched in step. Influenced by unsubstantiated fears and suspicions, often raised by managers, about the impact of takeovers on third parties, regulation in the United States has tended to thwart and burden takeovers as if they were non-value-maximizing wealth transfers. The author concludes that an informed reading of the literature suggests that much of the existing regulatory apparatus is unwarranted.

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