If at First You Don't Succeed: An Experimental Investigation of the Impact of Repitition Options on Corporate Takeovers

65 Pages Posted: 25 Jan 2015

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: August 1, 2000

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, while quite closely tracking theory in the effective absence of an option to resolicit, differed dramatically from theory when a significant probability of resolicitation was introduced: The option to resolicit reduced the costs of free riding fairly substantially. Both the raider offers and the shareholder tendering responses generally exceeded equilibrium predictions.

Keywords: 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 Experimental Investigation of the Impact of Repitition Options on Corporate Takeovers (August 1, 2000). FRB Atlanta Working Paper Series No. 2000-9, Available at SSRN: https://ssrn.com/abstract=2491228 or http://dx.doi.org/10.2139/ssrn.2491228

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 )

Broad St
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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