Takeovers and Voluntary Disclosures

41 Pages Posted: 8 Apr 2022 Last revised: 28 Mar 2023

Date Written: March 30, 2022


How does the possibility of being replaced affect a manager's voluntary disclosure? This paper analyzes this question in a setting where the manager's disclosure complements the rival's expertise and influences the probability the firm is taken over by the rival. The manager's disclosure decision is determined by a tradeoff between the severance payment she receives if the firm is taken over and the benefits of continuing and managing a firm of high value. I show that an optimally chosen severance payment can induce the manager to withhold extreme values and disclose only intermediate values of her private information. Moreover, in equilibrium, when the manager has a severance payment, a disclosing manager is more likely to be replaced whereas when the manager does not have a severance payment, a non-disclosing manager is more likely to be replaced. The results highlight the importance of endogenous severance contracts in determining the relation between disclosure and takeovers.

Keywords: Takeovers; Corporate Control; Voluntary Disclosures; Severance Payments; Takeover Premium

JEL Classification: G14, G34, M40, M41

Suggested Citation

Menon, Rahul, Takeovers and Voluntary Disclosures (March 30, 2022). Available at SSRN: https://ssrn.com/abstract=4070610 or http://dx.doi.org/10.2139/ssrn.4070610

Rahul Menon (Contact Author)

Purdue University ( email )

610 Purdue Mall
West Lafayette, IN 47906
United States

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