We construct a dynamic takeover law index using hand-collected data on legal provisions and empirically examine the effect of takeover regulation to protect shareholders on shareholder wealth for bidders and targets in a multi-country setting. We find that a stricter takeover law increases the wealth gains to the shareholders of the combined bidder and target firm, which suggests that stronger shareholder protection in the takeover bid process increases the efficiency of the takeover market. In contrast to our hypothesis, results show that stricter takeover law does not hurt bidders. Its effect on target announcement returns is significantly positive and economically large. Our findings on individual provisions suggest that the mandatory bid rule and ownership disclosure increase overall synergistic gains in takeovers, while the fair-price rule and squeeze-out rights may reduce them. Further results show that stricter takeover regulation increases competition in the market for corporate control and reduces the time to successful completion of a takeover bid, which explains increased combined wealth gains under stricter takeover regulation.

We examine the impact of local religious beliefs on organizational risk-taking behaviors using hedge funds as a new and unique setting. We find robust evidence that local religiosity is significantly negatively related to both total and idiosyncratic volatilities of hedge funds during 1996–2013. This relation is primarily driven by semi-directional funds, reversed for directional funds, and nonexistent for non-directional funds. Consistent with the local preference channel, the impact of local religiosity on risk-taking is only pronounced among funds for which local managers and investors are economically more important, namely young and small funds. Further, hedge funds located in more religious counties tend to hold less risky stocks and diversify their stock portfolios across industries, thus contributing to lower hedge fund risk-taking. Overall, our evidence suggests that local culture, in particular religiosity, may motivate hedge fund managers to reduce risk.