Similar Bidders in Takeover Contests

52 Pages Posted: 8 Apr 2011 Last revised: 27 Jul 2013

See all articles by Yun Dai

Yun Dai

Tinbergen Institute; Erasmus University Rotterdam (EUR); Duisenberg School of Finance

Sebastian Gryglewicz

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Han Smit

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Wouter De Maeseneire

Vlerick Business School; Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: July 19, 2013

Abstract

When bidders in a corporate takeover have related resources and post-acquisition strategies, their valuations of a target are likely to be interdependent. This paper analyzes sequential-entry takeover contests in which similar bidders have correlated private valuations. The level of similarity affects information content of bids and bidding competition. Our model predicts that expected acquisition prices and the probability of multiple-bidder contests are the highest for intermediately similar bidders. We test these predictions in laboratory experiments in which we control the similarity between bidders. The experimental data confirm the non-monotonic effects of similarity on prices and on the frequency of multiple-bidder contents

Keywords: takeover contests, interdependent valuations, information externality, competition intensity, experiment

JEL Classification: G34, D44, D03

Suggested Citation

Dai, Yun and Gryglewicz, Sebastian and Smit, Han and De Maeseneire, Wouter, Similar Bidders in Takeover Contests (July 19, 2013). Available at SSRN: https://ssrn.com/abstract=1803603 or http://dx.doi.org/10.2139/ssrn.1803603

Yun Dai

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Erasmus University Rotterdam (EUR)

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Duisenberg School of Finance

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Sebastian Gryglewicz (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Han Smit

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Wouter De Maeseneire

Vlerick Business School ( email )

Reep 1
Ghent
BE-9000 Ghent
Belgium

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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