The market for corporate control (operating through hostile takeovers) acts as a key corporate governance mechanism to discipline corporate managers. However, the process and substance of the regulation of hostile takeovers differs remarkably among various jurisdictions. Existing and influential scholarship has focused on the differences in hostile takeover regulation between the United States (US) and the United Kingdom (UK), with the explanations being founded in interest group politics (Armour and Skeel, 2007), and the theory has been extended to Europe, Japan and China (with modification). Influential as it is, a question arises as to whether the theory can be extended outside of the US and the UK, particularly to their legal transplants in Asia (in addition to Japan and China)? In the last few decades, several Asian jurisdictions have drawn heavily from the US and the UK when framing their own takeover regulation. Yet, Asia differs significantly from the US and the UK, particularly in respect of the much higher concentration of shareholdings among their publicly listed companies, and their institutions supporting takeover regulation, such as the securities regulator, the stock exchange and the judiciary. However, the differences in takeover regulation and the reasons therefor have not been the subject matter of extensive study in the existing scholarship.
Our paper Hostile Takeover Regimes in Asia: A Comparative Approach fills the gap by focusing on the regulation of hostile takeover regimes in Asia. Drawing from an earlier work (Varottil and Wan, 2017), we focus on takeover regulation in six significant Asian economies of China, Hong Kong, Japan, India, Korea and Singapore. We examine the differences in takeover law and regulation of the exporting countries (US and the UK) and recipient countries (the six Asian economies), and we explain the reasons for the differences. In particular, we focus on three questions. First, what interest groups are relevant to the choice of initial takeover regulation in Asian economies? Second, after the selection has occurred, what are the reasons for the continued lack of functional convergence? Third, are there any unintended consequences of legal transplantation of the US or UK model of takeover regulation in the Asian economies?
We argue that Armour and Skeel’s theory of interest group politics is both helpful and incomplete when it is extended to the Asian legal transplants. While the theory explains the role of the various actors in the market for corporate control and the factors that lead to the design of takeover regulation in Asian economies, there are limitations to the theory. First, the theory is concerned with indigenous development of takeover regulation based on local factors; however, in Asia, the jurisdictions have incorporated the takeover rules from other jurisdictions and adapted to local circumstances. Second, the theory has been developed in the context of advanced economies with dispersed shareholdings, without taking into account the influence of controlling shareholders that are influential in much of Asia (outside of Japan). Third, the theory is built around two active markets for corporate control in the US and the UK, while the incidence of hostile takeovers is very much reduced in Asia; even in economies such as Japan where the shareholdings are more dispersed, hostile takeovers remain rare. Fourth, the involvement of the state is far less pronounced in the US and the UK than in Asia.
In view of these limitations, we argue that takeover regulation in Asia must be viewed through a lens that is different from the Anglo-American approach; in particular, we must take into account the institutional factors that are at play when choices were (and are continuing to be) made. Our study has important implications on the academic debates on the efficacy of legal transplantations, comparative studies of hostile takeover regimes and the role of interest groups in shaping takeover regulation to a wider set of Asian countries than examined by current scholarship. Our study is relevant to emerging countries considering their reforms of takeover regulation.
Umakanth Varottil is Associate Professor at the National University of Singapore.
Wai Yee Wan is Associate Professor at the Singapore Management University.