Advising Shareholders in Takeovers

59 Pages Posted: 20 Jun 2011 Last revised: 31 Dec 2016

See all articles by Doron Levit

Doron Levit

University of Pennsylvania - Finance Department; European Corporate Governance Institute (ECGI)

Date Written: December 30, 2014


This paper studies the advisory role of the board of directors in takeovers. I develop a model in which the takeover premium and the ability of the target board to resist the takeover are endogenous. The analysis relates the influence of the board on target shareholders and the reaction of the market to its recommendations to various characteristics of the acquirer and the target. I also show that the expected target shareholder value can decrease with the expertise of the board and it is maximized when the board is biased against the takeover. Generally, uninformative and ignored recommendations are not necessarily evidence that the target board has no influence on the outcome of the takeover. Perhaps surprisingly, under the optimal board structure, target shareholders ignore the recommendations of the board, which are never informative in equilibrium.

Keywords: Takeover, Tender Offer, Merger, Advice, Communication, Recommendation, Board of Directors, Cheap-Talk, Coordination, Free-riding

JEL Classification: D82, D83, G34

Suggested Citation

Levit, Doron, Advising Shareholders in Takeovers (December 30, 2014). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: or

Doron Levit (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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