GDL

We present a model of profit diversion into a takeover environment. The model incorporates a legal


environment characterized by a probability of being convicted, a monetary sanction (ex-ante protec-


tion) and the costs of administrating the takeover (ex-post protection). We show that the extraction


of private benefits is reduced by the existence of such a legal environment, which is consistent with a


number of empirical studies. It also predicts that legal environment can conduct the bidder to acquire


more than 50% of the share due to the impact of the final holding of the bidder on the fine. The


paper contributes to the current debate on regulation of white-collar crime. It highlights the trade-off


between the ex-post profit diversion and minority protection, and the ex-ante probability of efficient


takeovers. But, considering simultaneously two tools of protection, the ex-ante and the ex-post ones,


which do not have the same impact, we derive some guidelines in order to analyze the current trend


of the US and the EU laws.

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