The Development of the Takeover Auction Process: The Evolution of Property Rights in the Modern Wild West

65 Pages Posted: 13 Feb 2018

See all articles by Tingting Liu

Tingting Liu

Iowa State University

J. Harold Mulherin

University of Georgia - Department of Banking and Finance

William O. Brown

University of North Carolina (UNC) at Greensboro

Date Written: January 29, 2018

Abstract

We study the interaction between the legal system and the takeover auction process during the 1981 to 2015 time period. We associate the strengthening of the property rights of target boards after the 1989 Time Inc. decision with fundamental changes in the takeover auction process. Following the 1989 decision, takeover auctions have moved from public and often hostile battles to a more behind the scenes, underground process where target boards control both the number of bidders and the flow of information. Target boards are more likely to initiate the auction themselves and the time between deal initiation (in private) and public deal announcement has significantly lengthened. Accounting for the increasing length of the deal initiation process, target premiums have significantly risen since 1989. Our property rights interpretation contrasts with the entrenchment story that argues that the decline in hostile takeovers has protected poorly performing management at the expense of target shareholders. Our results are consistent with the fundamental proposition of Coase (1959, 1960) that with well-defined property rights, resources flow to their highest valued use.

Keywords: Takeover auction, property rights, underground auction, target premiums

JEL Classification: G34, G38

Suggested Citation

Liu, Tingting and Mulherin, J. Harold and Brown, William O., The Development of the Takeover Auction Process: The Evolution of Property Rights in the Modern Wild West (January 29, 2018). Available at SSRN: https://ssrn.com/abstract=3112724 or http://dx.doi.org/10.2139/ssrn.3112724

Tingting Liu (Contact Author)

Iowa State University ( email )

2330 Gerdin Business Building
Ames, IA 50011
United States

J. Harold Mulherin

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States
706-542-3644 (Phone)

William O. Brown

University of North Carolina (UNC) at Greensboro ( email )

Bryan School of Business
PO Box 26165
Greensboro, NC 274026165
United States
336-256-0110 (Phone)

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