Takeover Defenses and Dilution: A Welfare Analysis
AbstractThis paper highlights the role of takeover defenses in the acquisition process. If managerial defensive effort is fixed, the unregulated level of takeover activity is lower than socially desirable since shareholders regard the financial incentives given to raiders to stimulate takeover activity as a cost, while society views them as a transfer. We show that this result no longer holds if defensive effort is variable -- the unregulated market for corporate control will generate excessive takeovers. One implication of our analysis is that in the presence of substantial anti-takeover related expenditures the gains from takeover will be overestimated. These gains include the benefits from dismantling defenses which were installed because of the takeover threat.
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Bibliographic InfoArticle provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.
Volume (Year): 36 (2001)
Issue (Month): 03 (September)
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Other versions of this item:
- Atreya Chakraborty & Richard Arnott, 1997. "Takeover Defenses and Dilution: A Welfare Analysis," Boston College Working Papers in Economics 351., Boston College Department of Economics, revised 06 Oct 2000.
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
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