If at First You Don't Succeed: An Investigation of the Effect of the Option to Resolicit on Corporate Takeovers and the Provision of Public Goods

FRB of Atlanta Working Paper 2000-9

62 Pages Posted: 13 Oct 2000

See all articles by Ann B. Gillette

Ann B. Gillette

Kennesaw State University - Michael J. Coles College of Business; Federal Reserve Banks - Federal Reserve Bank of Atlanta

Thomas H. Noe

University of Oxford - Said Business School; University of Oxford - Balliol College; Bank of Finland; European Corporate Governance Institute

Date Written: July 2002

Abstract

This paper models, and experimentally simulates, the free-rider problem in a takeover when the raider has the option to "resolicit," that is, to make a new offer after an offer has been rejected. In theory, the option to resolicit, by lowering offer credibility, increases the dissipative losses associated with free riding. In practice, the outcomes of our experiment support the overall predictions of theory. Although in resolicitation treatments, raider offers generally exceeded equilibrium predictions, shareholder tendering probabilities were less than predicted by either actual or equilibrium offers. The net effect of higher-than-predicted raider offers and lower-than-predicted shareholder tendering was negative. Thus, as predicted by theory, the option to resolicit increased the total dissipative costs associated with free riding, and reduced raider gains to less than three percent of synergy value.

Key words: corporate takeovers, experimental economics, resolicit

JEL Classification: G3, C7

Suggested Citation

Gillette, Ann Brewer and Noe, Thomas H., If at First You Don't Succeed: An Investigation of the Effect of the Option to Resolicit on Corporate Takeovers and the Provision of Public Goods (July 2002). FRB of Atlanta Working Paper 2000-9, Available at SSRN: https://ssrn.com/abstract=244077 or http://dx.doi.org/10.2139/ssrn.244077

Ann Brewer Gillette (Contact Author)

Kennesaw State University - Michael J. Coles College of Business ( email )

1000 Chastain Road
Kennesaw, GA 30144
United States

Federal Reserve Banks - Federal Reserve Bank of Atlanta

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Thomas H. Noe

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 3BJ
United Kingdom

University of Oxford - Balliol College ( email )

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Oxford, OX1 3BJ
United Kingdom

Bank of Finland ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

European Corporate Governance Institute ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

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