Stock selling during takeovers

Guillem Ordóñez-Calafí; John Thanassoulis

doi:10.1016/j.jcorpfin.2019.101550

Stock selling during takeovers

Guillem Ordóñez-Calafí^*, John Thanassoulis

^*Corresponding author for this work

Research output: Contribution to journal › Article (Academic Journal) › peer-review

4 Citations (Scopus)

77 Downloads (Pure)

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 language	English
Article number	101550
Number of pages	15
Journal	Journal of Corporate Finance
Volume	60
Early online date	12 Dec 2019
DOIs	https://doi.org/10.1016/j.jcorpfin.2019.101550
Publication status	Published - 1 Feb 2020

Research Groups and Themes

AF Corporate Finance

Keywords

Takeovers
takeover resistance
shareholder coordination
market feedback
global games

Access to Document

10.1016/j.jcorpfin.2019.101550

Full-text PDF (author’s accepted manuscript)
This is the author accepted manuscript (AAM). The final published version (version of record) is available online via Elsevier at https://www.sciencedirect.com/science/article/pii/S0929119919309344#! . Please refer to any applicable terms of use of the publisher.
Accepted author manuscript, 416 KBLicence: CC BY-NC-ND

Handle.net

Persistent link

Cite this

@article{4ffd81cf0de849fc96d19d55ec9e7472,

title = "Stock selling during takeovers",

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.",

keywords = "Takeovers, takeover resistance, shareholder coordination, market feedback, global games",

author = "Guillem Ord{\'o}{\~n}ez-Calaf{\'i} and John Thanassoulis",

year = "2020",

month = feb,

day = "1",

doi = "10.1016/j.jcorpfin.2019.101550",

language = "English",

volume = "60",

journal = "Journal of Corporate Finance",

issn = "0929-1199",

publisher = "Elsevier B.V.",

}

TY - JOUR

T1 - Stock selling during takeovers

AU - Ordóñez-Calafí, Guillem

AU - Thanassoulis, John

PY - 2020/2/1

Y1 - 2020/2/1

N2 - 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.

AB - 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.

KW - Takeovers

KW - takeover resistance

KW - shareholder coordination

KW - market feedback

KW - global games

UR - https://www.scopus.com/pages/publications/85076631631

U2 - 10.1016/j.jcorpfin.2019.101550

DO - 10.1016/j.jcorpfin.2019.101550

M3 - Article (Academic Journal)

AN - SCOPUS:85076631631

SN - 0929-1199

VL - 60

JO - Journal of Corporate Finance

JF - Journal of Corporate Finance

M1 - 101550

ER -

Stock selling during takeovers

Abstract

Research Groups and Themes

Keywords

Access to Document

Handle.net

Other files and links

Fingerprint

Dr Guillem Ordonez-Calafi

Cite this

Stock selling during takeovers

Abstract

Research Groups and Themes

Keywords

Access to Document

Handle.net

Other files and links

Fingerprint

Profiles

Dr Guillem Ordonez-Calafi

Cite this