Stock selling during takeovers

Guillem Ordóñez-Calafí*, John Thanassoulis

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)peer-review

Abstract

Stock sales during takeover negotiations weaken the target board's ability to recommend against the takeover, i.e., to resist. Sophisticated shareholders therefore face a coordination problem when deciding whether to sell-out early; and their actions generate a feedback loop between trading volumes and takeover outcomes. Bidding firms, anticipating the pressurising effect of future share sales on the target board, may reduce their bids. We study these tensions theoretically. We find that increasing the influence of shareholders during the bidding process lowers equilibrium bids; elongates the bidding process; but raises the overall probability of bid acceptance; and raises expected premia for unsophisticated shareholders.
Original languageEnglish
Article number101550
Number of pages15
JournalJournal of Corporate Finance
Volume60
Early online date12 Dec 2019
DOIs
Publication statusPublished - 1 Feb 2020

Structured keywords

  • AF Corporate Finance

Keywords

  • Takeovers
  • takeover resistance
  • shareholder coordination
  • market feedback
  • global games

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