Focussing on takeover bids whose outcome can be predicted in advance with certainty, Grossman and Hart estsblished the proposition, which subsequent work accepted, that successful bids must be made at or above the expected value of minority shares.This proposition provided the basis for Grossman and Hart's identification of a free-rider problem and became a major premise for the analyaia of takeovers.This paper showa that this important proposition does not always hold once we drop the assumption that the only successful bida are those whose success could have been predicted with certainty.In particular, it is shown that any unconditional bid that is below the expected value of minority shares but above the independent target's per share value will succeed with a certain positive probability; that the bidder's expected payoff from such a bid (not counting the transaction costs of making the bid) is always positive; and that bidders might elect to make such bids.These results have implications for the nature of the free-rider problem and for the operation of takeovers; in particular, it ia shown that, when a raider can increaae the value of a target's assets, the raider might elect to bid even if no dilution of minority shares is possible and it holds no initial stake in the target.

The concern of this paper is with the effects of insider trading on ex ante managerial behavior. Specifically, the paper focuses on how insider trading affects insiders ' choice among investment projects. Other things equal, insider trading leads insiders to choose riskier investment projects, because increased volatility of results enables insiders to make greater trading profits if they learn these results in advance of the market. This effect might be beneficial, however, because insiders ' risk aversion pulls them toward a conservative investment policy. Insiders ' choices of projects are identified and compared with insider trading and those without such trading. Using these results, the conditions under which insider trading increases or decreases corporate value by affecting the choice of projects with uncertain returns are identified. I.