Regulating Draconian Takeover Defenses with Soft Law: Empirical Evidence from Event Studies in China

Abstract

In recent years, many Chinese listed corporations have adopted draconian takeover defenses that harm shareholders’ interests. While the courts and the Chinese Securities Regulatory Commission have failed to offer any guidance as to the validity of these defenses, the two stock exchanges in China have adopted a soft-law approach to regulating them by issuing letters of concern to listed corporations. This article makes the first attempt to empirically evaluate the effectiveness of this soft-law approach by examining the effects of takeover defenses adopted under the regulation of letters of concern with event studies. The movements of stock prices during the event period suggest that the takeover defenses adopted by listed corporations under the regulation of stock exchanges were not draconian, and that these corporations were still potential takeover targets. Thus, letters of concern issued by the two stock exchanges are effective in curbing draconian takeover defenses and protecting public investors. These findings enrich our understandings of the effects of soft law and have important implications for investor protection and the development of the capital market in China.

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Fig. 1

Notes

  1. 1.

    The hostile takeover battle that attracted the most attention was fought between the boards of directors of Vanke and Baoneng. See Baowan Dazhan Liangdipai Shuangfang Kaiqi Zhengmian Jiaofeng (宝万大战亮底牌 双方开启正面交锋) [The Battle between Vanke and Baoneng Has Started], Zhongguo Zhengquanbao (中国证券报) [China Securities Daily], 20 December 2015.

  2. 2.

    These investors usually take on financial leverages by controlling insurance companies and borrowing from institutional investors or individuals with high net worth. Yao Zhenhua was a CEO of Qianhai Life Insurance. He also financed the takeover activities by initiating asset-management plans provided by mutual fund management companies or their subsidiaries.

  3. 3.

    Most hostile acquirers seek only to acquire enough shares to nominate directors in order to control the management of the corporations. They do not propose mergers with the target corporations because most listed corporations have ‘shell value’ since the status of listed corporations is difficult to obtain due to the tight regulation of the initial public offering. Thus, most hostile acquirers seek only to obtain control by controlling the board of directors.

  4. 4.

    The Delaware courts have developed sophisticated legal doctrines to review the decisions of the board of directors. Corporations usually cannot adopt ‘draconian’ takeover defenses that harm shareholders’ interests. Unitrin, Inc. v. American General Corp., 651 A.2d 1361 (Del. 1995). Hostile takeovers have long attracted academic attention. For decades, scholars have fiercely debated the efficiency of takeover defenses. See Easterbrook and Fischel (1981); Bebchuk et al. (2002); Bebchuk et al. (2009); Coffee (1984); Strine (2006); Lipton (1979); Jarrell et al. (1988); Greenwood and Schor (2009); Cremers and Sepe (2016); Romano (2010), p 489.

  5. 5.

    The CSRC only warned that listed corporations should not adopt takeover defenses that may harm the interests of their shareholders. Li Tianzhen (李天真), Zhengjianhui: Bude Liyong Fanshougou Tiaokuan Xianzhi Gudong Quanli (证监会:不得利用反收购条款限制股东权利) [CSRC: Listed Corporations Should Not Use Takeover Defenses to Restrict the Rights of Shareholders], Zhongguo Zhengquanbao (中国证券报) [China Securities Daily], 27 August 2016.

  6. 6.

    See Hopt (2011), p 11; Trubek (2006), p 149 (‘There is also a development of informal processes to resolve grievances and disputes, including negotiation and multistepped procedures. This can be called “soft law”.’ ‘“Hard law” can be characterized as command and control, court-based dispute resolution, uniform rules, punitive sanctions, and court challenges for noncompliance.’).

  7. 7.

    Liebman and Milhaupt (2008), p 932. See also Coffee (2001b), p 34.

  8. 8.

    See generally Liebman and Milhaupt (2008), p 932. See also Coffee (2001b), p 34.

  9. 9.

    See Kahan and Posner (1999); Skeel (2001); Liebman and Milhaupt (2008).

  10. 10.

    Coffee (2001b), p 34; Black (2001).

  11. 11.

    See e.g. Hopt (2011); Aguilera et al. (2013) (‘corporate governance and financial literatures are not conclusive on whether these governance mechanisms, hard or soft law, have an effect on firm performance.’).

  12. 12.

    Aguilera et al. (2013), pp 23-45.

  13. 13.

    De Jong et al. (2005).

  14. 14.

    RiskMatrics (2009), p 168 (‘Although the comply-or-explain approach is considered an appropriate and efficient regulatory tool by a large majority of market actors and regulators, there is also a wide consensus that the mechanism does not function perfectly. Moreover, the role of deficiencies in corporate governance practices was highlighted as one of the causes of the late 2000 financial crisis’).

  15. 15.

    Liebman and Milhaupt (2008), p 967.

  16. 16.

    La Porta et al. (1997), pp 1149–1150.

  17. 17.

    Clarke and Howson (2012), p 277.

  18. 18.

    Coffee (1989); Easterbrook and Fischel (1989), p 1418; Eisenberg (1989), p 1482; Gordon (1989); Bebchuk (1989a), p 1821 (corporate law has ‘always included a significant body of mandatory rules’); Bebchuk (1989b); Romano (1989).

  19. 19.

    Gordon (1989), p 1573.

  20. 20.

    Gordon (1989), p 1573.

  21. 21.

    See e.g., Zhang (2009), p 122.

  22. 22.

    Liu Shiyu: Fandui Yemanren Qiangdaoshi Shougou Tiaozhan Xingfa Jiang Kaiqi Laoyu Damen (刘士余:反对野蛮人强盗式收购 挑战刑法将开启牢狱大门) [Liu Shiyu: Objecting to Hostile Takeovers by Gangsters, Those Who Challenge the Criminal Law Shall Pay for it], Fenghuang Caijing Xun (凤凰财经讯) [Phoenix Financial News], 3 December 2016, http://finance.ifeng.com/a/20161203/15052057_0.shtml (last visited 31 December 2017); Baojianhui Chen Wenhui: Baoxian Gongsi Raokai Jianguan Xujia Zengzi shi Fanzui (保监会陈文辉:保险公司绕开监管虚假增资是犯罪) [Chen Wenhui of the CIRC: Insurance Companies That Fail to Comply with the Regulatory Rules on Capital Regulation Are Committing Crimes], Diyi Caijing (第一财经) [China Business News], 4 December 2016, http://www.yicai.com/news/5174552.html (last visited 31 December 2017).

  23. 23.

    The stock market in China is frequently influenced by announcements made by public officials. See Xu and Li (2001).

  24. 24.

    Unitrin, Inc. v. American General Corp., 651 A.2d 1361 (Del. 1995).

  25. 25.

    In 2017, the total number of corporations listed on the Shanghai and Shenzhen Exchanges was about 3400.

  26. 26.

    The hostile takeover battle that attracted the most attention was fought between the directors of Vanke and Baoneng. See Baowan Dazhan Liangdipai Shuangfang Kaiqi Zhengmian Jiaofeng (宝万大战亮底牌 双方开启正面交锋) [The Battle Between Vanke and Baoneng Has Started], Zhongguo Zhengquanbao (中国证券报) [China Securities Daily], 20 December 2015.

  27. 27.

    In China, poison pills are not available because the issuance of stocks needs to be approved by the shareholder meeting and cannot be authorized by the board of directors alone. For a detailed discussion of these defenses, see infra Sect. 3.

  28. 28.

    Bebchuk et al. (2002), p 891.

  29. 29.

    Fama (1970), p 383.

  30. 30.

    See Jensen and Meckling (1976).

  31. 31.

    Bebchuk et al. (2002), p 891.

  32. 32.

    Bebchuk et al. (2002), p 891.

  33. 33.

    Coffee (1984), p 1169.

  34. 34.

    Coffee (1984), p 1169; Bainbridge (2003), pp 559–574.

  35. 35.

    Romano (1992), p 148 (‘The motivation for an acquisition is the maximization of the manager’s utility rather than of the shareholders’ wealth, or more simply put, self-aggrandizement.’).

  36. 36.

    Jarrell et al. (1988), p 53 (‘The 159 cases from the 1980 s show statistically insignificant losses to bidders.’).

  37. 37.

    See Strine (2006), p 1764 (‘[A Traditionalist] recognizes that institutions, such as mutual and pension funds, control a majority of shares and that their incentives are not identical to those of the individual investors whose capital they control.’). Lipton (1979), p 104.

  38. 38.

    See Strine (2006), p 1764; Lipton (1979), p 104.

  39. 39.

    See Strine (2006), p 1764; Lipton (1979), p 104.

  40. 40.

    Cremers and Sepe (2016), p 80.

  41. 41.

    Cremers and Sepe (2016), p 80.

  42. 42.

    Coffee (1984), p 1175.

  43. 43.

    Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 956 (Del. 1985); Unitrin, Inc. v. American General Corp., 651 A.2d 1361 (Del. 1995).

  44. 44.

    See generally La Porta et al. (2008), p 326.

  45. 45.

    The 2016 Annual Shareholder Meeting of Zhejiang Kingland Pipeline and Technologies Co., Ltd., http://www.cninfo.com.cn/cninfo-new/disclosure/szse_sme/bulletin_detail/true/1203537247?announceTime=2017-05-19 (accessed 29 December 2017).

  46. 46.

    Shanghai Stock Exchange Statistical Yearbook 625 (2017).

  47. 47.

    Shanghai Stock Exchange Statistical Yearbook 625 (2017).

  48. 48.

    Shareholders who collectively hold above 3% may also propose an amendment pursuant to the corporate charters. Gongsi Fa (公司法) [Company Law] (promulgated by the Standing Committee of the National Congress, 28 December 2013, effective 1 March 2014), Art. 103.

  49. 49.

    Gongsi Fa (公司法) [Company Law] (promulgated by the Standing Committee of the National Congress, 28 December 2013, effective 1 March 2014), Art. 22.

  50. 50.

    Gongsi Fa (公司法) [Company Law] (promulgated by the Standing Committee of the National Congress, 28 December 2013, effective 1 March 2014), Art. 20.

  51. 51.

    Gongsi Fa (公司法) [Company Law] (promulgated by the Standing Committee of the National Congress, 28 December 2013, effective 1 March 2014), Art. 22.

  52. 52.

    Professors Clarke and Howson have pointed out that this is probably because courts do not accept cases involving large numbers of plaintiffs. See Clarke and Howson (2012), p 277. Recently however, China set up a China Securities Investor Services Center (中证中小投资者服务中心有限责任公司), a public-oriented corporation controlled by the CSRC to represent the interests of minority shareholders in listed corporations. It has decided to launch lawsuits against several listed corporations. It is possible that courts may play a larger role in regulating draconian takeover defenses in the future.

  53. 53.

    It thus remains unclear whether the defensive measures comply with the Chinese Corporate Law.

  54. 54.

    Zhang (2009), p 125.

  55. 55.

    See Gordon (1989), pp 1591–1592 (‘Many mandatory rules of corporate law allocate power throughout the governance structure, affecting, in particular, the balance of power between directors and shareholders. The managerial role of the board, shareholder voting rights in the election of directors, and shareholder removal rights are classic examples.’). See also Eisenberg (1989), pp 1463–1466.

  56. 56.

    Coffee (1989), p 1627 (‘A review of those cases dealing with true contractual departures […] shows both that courts have permitted some deviations and rejected others and that the trend in judicial decisions has been toward greater tolerance.’).

  57. 57.

    Shangshi Gongsi Shougou Guanli Banfa (2014 nian xiuding) (上市公司收购管理办法(2014修订)) [Measures for the Administration of the Takeover of Listed Companies (2014 Revision)], promulgated on 13 December 2014 and in effect on 1 September 2006. Available at http://pkulaw.cn/fulltext_form.aspx?Db=chl&Gid=21e31a6f80542175bdfb&keyword=%E4%B8%8A%E5%B8%82%E5%85%AC%E5%8F%B8%E6%94%B6%E8%B4%AD%E7%AE%A1%E7%90%86%E5%8A%9E%E6%B3%95&EncodingName=&Search_Mode=accurate&Search_IsTitle=0 (accessed 9 January 2019).

  58. 58.

    China’s stock exchanges are controlled by the government and act as regulators. The CSRC has the power to appoint or remove the general manager of the exchanges. One common regulatory measure of stock exchanges is to criticize listed corporations for violation of regulatory rules and for harming investors. Professors Liebman and Milhaupt have studied the effects of criticisms from stock exchanges on listed corporations and found that they play a significant role in protecting investors. Liebman and Milhaupt (2008).

  59. 59.

    Liebman and Milhaupt (2008), p 945.

  60. 60.

    See e.g., Taijia Gufen Guanyu dui Shenzhen Zhengquan Jiaoyisuo Guanzhuhan Huifu de Gonggao (泰嘉股份关于对深圳证券交易所关注函回复的公告) [Taijia’s Public Notice of the Response to the Letters of Concern Issued by the Shenzhen Stock Exchange], available at http://www.cninfo.com.cn/cninfo-new/disclosure/szse_sme/bulletin_detail/true/1203186671?announceTime=2017-03-23 (accessed 9 January 2019).

  61. 61.

    Ogus (1995), p 98 (‘self-regulatory agencies can normally command a greater degree of expertise and technical knowledge.’).

  62. 62.

    Ogus (1995), p 98.

  63. 63.

    Shaked and Sutton (1981); Aguilera et al. (2013).

  64. 64.

    The Corporate Charter of Boya Bio-pharmaceutical Group Co., Ltd., http://www.cninfo.com.cn/cninfo-new/disclosure/szse_gem/bulletin_detail/true/1200731472?announceTime=2015-03-24 (last visited 15 December 2017).

  65. 65.

    These three corporations are Sichuan Yahua Industrial Group Co., Ltd (000790), Sichuan Jinlu Group Co., Ltd. (000510) and Inner Mongolia Yili Industrial Group Co., Ltd. (600887). The reason they abandoned the attempt remains unclear. Perhaps they believed they were not in danger of being acquired after all and therefore did not go through with the plan.

  66. 66.

    The Corporate Charter of Longping High-Tech Co., Ltd., http://www.cninfo.com.cn/cninfo-new/disclosure/szse_main/bulletin_detail/true/1200462885?announceTime=2014-12-13 (last visited 15 December 2017).

  67. 67.

    The Corporate Charter of Longping High-Tech Co., Ltd., http://www.cninfo.com.cn/cninfo-new/disclosure/szse_main/bulletin_detail/true/1200462885?announceTime=2014-12-13 (last visited 15 December 2017), Art. 77.

  68. 68.

    For example, in addressing Longping High-Tech’s amendment of Art. 38, the Shenzhen Exchange states in its letter: ‘please check whether the amendment complies with Article 4, Article 101 and Article 102’. The Shenzhen Stock Exchange seems to have ignored the fact that many of these takeover defenses were in place prior to the proposed amendment. Guanyu Dui Yuanlongping Nongye Gaokeji Gufen Youxian Gongsi de Guanzhuhan (关于对袁隆平农业高科技股份有限公司的关注函) [Letters of Concern Issued to Long Pint High-Tech], http://www.szse.cn/UpFiles/fxklwxhj/CDD00099837191.PDF (last visited 15 December 2017).

  69. 69.

    Yuanlongping Nongye Gaokeji Gufen Youxian Gongsi Di Liu Jie Dongshihui Di Ershiwu ci Linshi Huiyi Jueyi Gonggao (袁隆平农业高科技股份有限公司第六届董事会第二十五次(临时)会议决议公告) [The 25th (Interim) Board Resolution of the Sixth Board of Longping High-Tech], http://www.cninfo.com.cn/cninfo-new/disclosure/szse_main/bulletin_detail/true/1201920581?announceTime=2016-01-16 (last visited 15 December 2017).

  70. 70.

    Board Resolution of Shandong Jintai Group Co., Ltd., http://www.cninfo.com.cn/cninfo-new/disclosure/sse/bulletin_detail/true/1202560241?announceTime=2016-08-12 (last visited 15 December 2017).

  71. 71.

    Corporate Charter of Shandong Jintai Group Co., Ltd., available at http://www.cninfo.com.cn/cninfo-new/disclosure/sse/bulletin_detail/true/1202656094?announceTime=2016-08-31 (last visited 15 December 2017).

  72. 72.

    I choose this period because in the following event studies, I am considering the impacts on these corporations of the events that occurred on 3 December 2016.

  73. 73.

    The Corporate Charter of China Baoan Group Co., Ltd., http://www.cninfo.com.cn/cninfo-new/disclosure/szse_main/bulletin_detail/true/1202438448?announceTime=2016-06-30 (last visited 15 December 2017).

  74. 74.

    The Corporate Charter of Shanghai Liangxin Electrical Co., ltd., http://www.cninfo.com.cn/cninfo-new/disclosure/szse_sme/bulletin_detail/true/1202841147?announceTime=2016-11-24 (last visited 15 December 2017).

  75. 75.

    Yuanlongping Nongye Gaokeji Gufen Youxian Gongsi Di Liu Jie Dongshihui Di Ershiwu ci Linshi Huiyi Jueyi Gonggao (袁隆平农业高科技股份有限公司第六届董事会第二十五次(临时)会议决议公告) [The 25th (Interim) Board Resolution of the Sixth Board of Longping High-Tech], http://www.cninfo.com.cn/cninfo-new/disclosure/szse_main/bulletin_detail/true/1201920581?announceTime=2016-01-16 (last visited 15 December 2017).

  76. 76.

    Ayres and Braithwaite (1992), p 124.

  77. 77.

    Ayres and Braithwaite (1992), p 125. (‘We strongly suspect that simple, particularistic rules over which business had considerable control would not be more susceptible to evasion than complex rules over which business had less control because the whole inherited wisdom from the study of corporate crime is that it is complexity that makes conviction so often impossible. Ultimately, however, this question can only be answered empirically.’).

  78. 78.

    Bebchuk et al. (2009).

  79. 79.

    Cremers and Sepe (2016), p 90.

  80. 80.

    Cremers and Sepe (2016); Frakes (2007), p 113; Faleye (2007), pp 514–515.

  81. 81.

    Cremers and Sepe (2016), p 104.

  82. 82.

    Liu Shiyu: Fandui Yemanren Qiangdaoshi Shougou Tiaozhan Xingfa Jiang Kaiqi Laoyu Damen (刘士余:反对野蛮人强盗式收购 挑战刑法将开启牢狱大门) [Liu Shiyu: Objecting to Hostile Takeovers by Gangsters, Those Who Challenge the Criminal Law Shall Pay for it], Phoenix Financial News (凤凰财经讯), 3 December 2016, http://finance.ifeng.com/a/20161203/15052057_0.shtml (last visited 31 December 2017).

  83. 83.

    Baojianhui Chen Wenhui: Baoxian Gongsi Raokai Jianguan Xujia Zengzi shi Fanzui (保监会陈文辉:保险公司绕开监管虚假增资是犯罪) [Chen Wenhui of the CIRC: Insurance Companies That Fail to Comply with the Regulatory Rules on Capital Regulation Are Committing Crimes], China Business News (第一财经), 4 December 2016, http://www.yicai.com/news/5174552.html (last visited 31 December 2017).

  84. 84.

    Baojianhui Diaocha Ruzhu Qianhai Renshou Baoxianye Jianguan Quyan (保监会调查组入驻前海人寿 保险业监管趋严) [CIRC Investigation Group Enter Qianhai Life Insurance, Regulation on the Insurance Industry Tightens], China Times (华夏时报), 7 December 2016.

  85. 85.

    Guanyu Zanting Hengda Renshou Baoxian Youxiangongsi Weituo Gupiao Touzi Yewu de Tongzhi (关于暂停恒大人寿保险有限公司委托股票投资业务的通知) [Notice on Suspending the Trading of Stocks by Evergrand Life Co., Ltd.], http://www.circ.gov.cn/web/site0/tab6527/info4052820.htm (last visited 31 December 2017.).

  86. 86.

    Baojianhui Zhuxi: Jueburang Baoxianjigou Cheng Yemanren (保监会主席:绝不让保险机构成’野蛮人’) [Do not Let Insurance Companies Become Barbarians at the Gate], Beijing News (新京报), 14 December 2016.

  87. 87.

    All data used in this article comes from the SinoFin-CCER database.

  88. 88.

    Initially I have 15 corporations. However, the stocks of one of these corporations (Xinjiang Yilu Wanyuan Industrial Investment Holding Co., Ltd.) were not traded when the events occurred. After I exclude this corporation, the final basket includes equally weighted stocks of 14 corporations.

  89. 89.

    The information about the ownership structure of these 148 corporations is based on their 2016 annual report. There were 183 corporations in total with a controlling shareholder holding 50.01–55% of the stocks listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange. I excluded the corporations that were not traded for up to 150 days in a year prior to the event, and those that were not traded on the event day.

  90. 90.

    The information about the ownership structure of these 331 corporations is based on their 2016 annual report. There were 410 corporations in total with a controlling shareholder holding 50.01–70% of the stocks listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange. Again, I excluded the corporations that were not traded for up to 150 days in a year prior to the event, and those that were not traded on the event day. There are finally 331 corporations left in the basket. I did not include corporations with a controlling shareholder holding above 70% of the corporate stocks because these stocks are relatively illiquid and their prices are likely affected by other factors.

  91. 91.

    Information about the shareholders of these corporations comes from the 2016 annual report of these corporations, collected through the Sinofin-CCER Database.

  92. 92.

    Using a portfolio approach may alleviate the omitted variable bias of the study, since for an omitted variable to create bias in this study, it has to be correlated with the portfolio and not just with stocks in one of these baskets.

  93. 93.

    Brown and Warner (1980), p 251.

  94. 94.

    Negative abnormal returns of Basket 1 were marginally significant using a ten-day event window.

  95. 95.

    Figure 2 in the Appendix presents the cumulative abnormal return of Portfolio A during the event period.

  96. 96.

    Figure 3 in the Appendix presents the cumulative abnormal return of Portfolio B during the event period.

  97. 97.

    Gelbach, Helland and Klick (2013).

  98. 98.

    Coffee (2001a), p 2152. Some researchers propose that corporations comply with regulation merely for instrumental reasons. See Hawkins and Hutter (1993); Porter and van der Linde (1995). Others suggest that corporations would seek to meet social expectations even when the law does not clearly require them to do so. See e.g. Gunningham et al. (2004).

  99. 99.

    Liebman and Milhaupt (2008), p 975 (‘Officials, lawyers, and corporate officials all stated that the consequences of a public criticism on an individual’s reputation can be severe.’).

  100. 100.

    This is similar to what scholars describe as a ‘responsive regulation’ approach. Braithwaite (2006). See also Braithwaite (2016), p 1 (‘Responsive regulation is a meta-strategy for arranging problem-solving strategies in a hierarchy of coerciveness and then implementing a presumptive preference for trying the less coercive solutions first, moving up the hierarchy of strategies until one of them succeeds in fixing the problem.’).

  101. 101.

    See Liebman and Milhaupt (2008), pp 930–931.

  102. 102.

    See La Porta et al. (2008).

  103. 103.

    See generally Liebman and Milhaupt (2008).

  104. 104.

    Romano (1989), pp 1603–1613 (challenging the hypotheses that justify mandatory rules in corporate law). See also generally Coffee (1989) (arguing that the balance of mandatory/enabling rules shifts over time).

  105. 105.

    See Liebman and Milhaupt (2008), p 981.

  106. 106.

    Ayres and Braithwaite argue that enforced self-regulation would ‘adjust more quickly to changing business environments’. Ayres and Braithwaite (1992), p 110 (‘A primary reason for the failure of law to control corporate crime is that legal institutions are made to last, whereas economic institutions are designed for rapid adaptation to changing economic and technological realities’).

  107. 107.

    For recent discussions, see e.g., Zhang (2017); Zhang (2009); Gilson and Schwartz (2016).

  108. 108.

    See Liebman and Milhaupt (2008), p 982.

  109. 109.

    Trubek (2006), p 148 (‘Experimentation can also be seen as continuous quality improvement—organizations should be constantly experimenting to see what works and what does not.’). Ayres and Braithwaite (1992), p 111 (arguing that ‘regulatory innovation would be fostered’ under enforced self-regulation).

  110. 110.

    Trubek (2006), p 149 (‘Soft law allows for learning and feedback. It allows actors to take on multiple roles, and creates alliances between traditional adversaries.’).

  111. 111.

    Ayres and Braithwaite (1992), p 101 (‘The contention of this book is that there is no such thing as an ahistorical optimal regulatory strategy. There are just different strategies that have a mix of strengths and weaknesses.’).

  112. 112.

    Stigler (1971).

  113. 113.

    It should be pointed out that not all listed corporations that adopted defensive measures in 2016 received LoCs openly. Chengdu Road and Bridge Engineering Co. Ltd., for example, adopted defensive measures but was not issued a LoC. It remains unclear whether stock exchanges regulated these corporations using other informal mechanisms.

  114. 114.

    Gilson and Schwartz (2016).

  115. 115.

    See generally Gilson and Schwartz (2016).

  116. 116.

    Gilson and Schwartz (2016).

  117. 117.

    Ayres and Braithwaite (1992), p 124 (pointing out that under enforced self-regulation, ‘companies would write their rules in ways that would assist them to evade the spirit of the law’).

  118. 118.

    Romano (1989), p 1606 (stating that the opportunistic amendment hypothesis is the most intriguing one among all hypotheses).

  119. 119.

    Bebchuck (1989a), p 1851 (‘With respect to any given issue, which legal institution should be charged with the role of shaping the standard legal arrangement governing the issue and with selecting those aspects of this arrangement from which opting out in midstream should not be possible? The options include legislatures (federal or state), courts, and agencies.’).

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Acknowledgement

I would like to thank Professors Yan Liu, Bing Peng, Yingmao Tang, Wenming Xu, and an anonymous reviewer for helpful comments.

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Appendix

Appendix

See Figs. 2, 3, 4.

Fig. 2
figure2

Cumulative abnormal return of Portfolio A

Fig. 3
figure3

Cumulative abnormal return of Portfolio B

Fig. 4
figure4

Cumulative abnormal return of Portfolio C

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Zeng, J.S. Regulating Draconian Takeover Defenses with Soft Law: Empirical Evidence from Event Studies in China. Eur Bus Org Law Rev 20, 823–854 (2019). https://doi.org/10.1007/s40804-019-00131-5

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Keywords

  • Takeover defenses
  • Soft law
  • Event study
  • Letters of concern
  • Mandatory rules in corporate law