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

Laurence Schumann
Working Paper:

Past studies of takeover regulations have found that they 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 paper uses the "event study" method to measure the net effect of two takeover statutes passed by New York State 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.