Entry and competition in takeover auctions

We estimate the degree of uncertainty faced by potential bidders in takeover auctions and quantify how it affects prices in auctions and negotiations. The high degree of uncertainty revealed by our structural estimation encourages entry in auctions but reduces a target’s bargaining power in negotiat...

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Bibliographic Details
Published in:Journal of financial economics 2019-05, Vol.132 (2), p.298-324
Main Authors: Gentry, Matthew, Stroup, Caleb
Format: Article
Language:English
Subjects:
Acquisitions & mergers
Auctions
Competition
Information frictions
Markets
Mergers and acquisitions
Negotiation
Negotiations
Power
Prices
Structural estimation
Takeovers
Uncertainty
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Summary:We estimate the degree of uncertainty faced by potential bidders in takeover auctions and quantify how it affects prices in auctions and negotiations. The high degree of uncertainty revealed by our structural estimation encourages entry in auctions but reduces a target’s bargaining power in negotiations. In the aggregate, auctions and negotiations produce similar prices, even though auctions are preferred in takeover markets with high uncertainty, while the reverse is true for negotiations. Firm characteristics predict pre-entry uncertainty and thus are informative about the relative performance of auctions and negotiations for individual targets.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2018.10.007