Financing Bidders in Takeover Contests

53 Pages Posted: 16 Mar 2012 Last revised: 7 Dec 2015

Date Written: November 30, 2014


This paper argues that endogenizing how acquirers finance their cash bids is just as important for understanding bidding in takeovers as endogenizing acquirers' payment method choice. The paper shows that acquirers finance their cash bids with equity only if they lack access to competitive financing. This leads to underbidding and lower takeover premiums. Conversely, competitive financing results in debt financing for cash bids and overbidding. Endogenizing the payment method reveals that premiums are lower when acquirers offer securities instead of cash financed at competitive terms. These insights find empirical support and could help explain existing evidence, which contradicts prior theory.

Keywords: Takeover premia, acquirer financing, takeover contests, financial constraints, security design

JEL Classification: D44, G32, G33, G34

Suggested Citation

Vladimirov, Vladimir N., Financing Bidders in Takeover Contests (November 30, 2014). Journal of Financial Economics (JFE), 117 (3), 534–557, September 2015 . Available at SSRN: or

Vladimir N. Vladimirov (Contact Author)

University of Amsterdam Business School ( email )

Roetersstraat 18
Amsterdam, 1018WB

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