Do Termination Provisions Truncate the Takeover Bidding Process?

45 Pages Posted: 17 May 2006

See all articles by Audra L. Boone

Audra L. Boone

Texas Christian University - M.J. Neeley School of Business

J. Harold Mulherin

University of Georgia - Department of Banking and Finance

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Abstract

We provide new evidence on termination provisions and the takeover bidding process. Our central contribution is a novel database from SEC documents that accurately measures the incidence of termination provisions and the depth of competition in takeover deals. We show that biased data in prior research produced incorrect conclusions on the relation between termination provisions and judicial decisions, bidder toeholds and deal size. Our comprehensive data also show that termination provisions are positively related to takeover competition. Our evidence is consistent with the information/commitment hypothesis in which termination provisions do not truncate bidding but instead culminate the takeover process.

Keywords: Takeover auctions, termination fees, stock option agreements, shareholder voting agreements

JEL Classification: G34, K22, D44

Suggested Citation

Boone, Audra and Mulherin, J. Harold, Do Termination Provisions Truncate the Takeover Bidding Process?. Available at SSRN: https://ssrn.com/abstract=902488 or http://dx.doi.org/10.2139/ssrn.902488

Audra Boone (Contact Author)

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
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)

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