Anchoring in Mergers and Acquisitions: Does the Regulatory Environment Matter?

We examine the 52-week anchoring effect in the Indian takeover market that has a unique regulatory design. The Indian takeover regulation mandates the minimum offer price to be function of the target's 26-week or 60-day high price. We show that the 52-week anchoring effect is robust even in the face of other regulatory anchors that differ from the widely cited 52-week high price. The anchoring effect dominates when the offer price exceeds the 52-week high price. Regulatory intervention in 2011 that shifts the floor price to a recent market price, such as the 60-day high price, does not attenuate the 52-week anchoring effect. We infer that acquirers are willing to pay a higher premium while anchoring to the 52-week high price, even when the regulatory focus is on lower reference prices. Besides, regulatory anchors also serve as additional focal points, demonstrated by the significance of the 26-week high price during its own period of regulation (2002-2011).