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Auctions of Companies

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  • Hansen, Robert G
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    Abstract

    Auctions of companies are conducted in ways that contradict received auction theory. The major puzzles are: (1) sellers restrict the number of bidders; (2) sellers restrict the number of bidders; (3) bidders are screened by an initial round of non-binding bids; and (4) bidders offer--and sellers sometimes accept--preemptive bids. Puzzles (1), (2), and (4) are explained by assuming that some information concerning the company can, if released, reduce the value of the company. Puzzle (3) is explained as a way for sellers to select the highest-valued bidders; equilibrium is maintained by using the initial bids to set a reserve price for the final bidding round. Copyright 2001 by Oxford University Press.

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    Bibliographic Info

    Article provided by Western Economic Association International in its journal Economic Inquiry.

    Volume (Year): 39 (2001)
    Issue (Month): 1 (January)
    Pages: 30-43

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    Handle: RePEc:oup:ecinqu:v:39:y:2001:i:1:p:30-43

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    Cited by:
    1. Loyola, Gino, 2012. "Optimal and efficient takeover contests with toeholds," Journal of Financial Intermediation, Elsevier, vol. 21(2), pages 203-216.
    2. Calcagno, Riccardo & Falconieri, Sonia, 2014. "Competition and dynamics of takeover contests," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 36-56.
    3. Fidrmuc, Jana P. & Roosenboom, Peter & Paap, Richard & Teunissen, Tim, 2012. "One size does not fit all: Selling firms to private equity versus strategic acquirers," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 828-848.
    4. Podolski, Edward J. & Truong, Cameron & Veeraraghavan, Madhu, 2013. "Informed options trading prior to takeovers – Does the regulatory environment matter?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 286-305.
    5. Vasiliki Skreta, 2008. "On the Informed Seller Problem: Optimal Information Disclosure," Working Papers 08-10, New York University, Leonard N. Stern School of Business, Department of Economics.
    6. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2010. "Negotiations under the threat of an auction," Journal of Financial Economics, Elsevier, vol. 98(2), pages 241-255, November.
    7. Qingzhong Ma, 2013. "Investment banks advising takeover targets," Journal of Economics and Finance, Springer, vol. 37(3), pages 339-374, July.
    8. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2009. "Learning, hubris and corporate serial acquisitions," Journal of Corporate Finance, Elsevier, vol. 15(5), pages 543-561, December.
    9. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2011. "Serial acquirer bidding: An empirical test of the learning hypothesis," Journal of Corporate Finance, Elsevier, vol. 17(1), pages 18-32, February.
    10. : Jana P. Fidrmuc & Peter Roosenboom & Richard Paap & Tim Teunissen, 2012. "One size Does Not Fit All: Selling Firms to Private Equity Versus Strategic Acquirers," Working Papers wpn12-02, Warwick Business School, Finance Group.
    11. Audra L. Boone & J. Harold Mulherin, . "Corporate Restructuring and Corporate Auctions," Claremont Colleges Working Papers 2002-38, Claremont Colleges.

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