Disclosure Regulation and Corporate Acquisitions

Abstract

This paper examines the effect of disclosure regulation on the takeover market. We study the implementation of a recent European regulation that imposes tighter disclosure requirements regarding the financial and ownership information on public firms. We find a substantial drop in the number of control acquisitions after the implementation of the regulation, a decrease that is concentrated in countries with more dynamic takeover markets. Consistent with the idea that the disclosure requirements increased acquisition costs, we also observe that, under the new disclosure regime, target (acquirer) stock returns around the acquisition announcement are higher (lower), and toeholds are substantially smaller. Overall, our evidence suggests that tighter disclosure requirements can impose significant acquisition costs on bidders and thus slow down takeover activity.