Journal of Finance Vol. 50 No. 5 1995
Initial Shareholdings and Overbidding in Takeover Contests
Abstract
Within the context of takeovers, this paper shows that in private‐value auctions the optimal individually rational strategy for a bidder with partial ownership of the item is to overbid, i.e., to bid more than his valuation. This strategy, however, can lead to i ) an inefficient outcome, and ii ) the winning bidder making a net loss. Further, the overbidding result implies that the presence of a large shareholder increases the bid premium in single‐bidder takeovers at the expense of reducing the probability of the takeover actually occurring.
- DOI
- 10.1111/j.1540-6261.1995.tb05186.x
- Volume
- 50
- Issue
- 5
- Pages
- 1491-1515
- Language
- en
- Sources
- crossref openalex