Facilitation of Competing Bids and the Price of a Takeover Target

Posted: 1 Dec 2008

See all articles by Ivan P. L. Png

Ivan P. L. Png

National University of Singapore (NUS)

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Abstract

We present a model of corporate acquisitions in which initially uninformed bidders must incur costs to learn their (independent) valuations of a potential takeover target. The first bidder makes either a preemptive bid that will deter the second bidder from investigating or a lower bid that will induce the second bidder to investigate and possibly compete. We show that the expected price of the target may be higher when the first bidder makes a deterring bid than when there is competitive bidding. Hence, by weakening the first bidder's incentive to choose a preemptive bid, regulatory and management policies to assist competing bidders may reduce both the expected takeover price and social welfare.

Suggested Citation

Png, Ivan P. L. and Hirshleifer, David A., Facilitation of Competing Bids and the Price of a Takeover Target. Review of Financial Studies, Vol. 2, No. 4, pp. 587-606, 1989. Available at SSRN: https://ssrn.com/abstract=1286187

Ivan P. L. Png

National University of Singapore (NUS) ( email )

Singapore, 117543
Singapore
+65 6516-6807 (Phone)

HOME PAGE: http://sites.google.com/site/iplpng/

David A. Hirshleifer (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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