Greenmail, White Knights, and Shareholders' Interest
AbstractThis article develops a model in which greenmail and other forms of management resistance to takeovers can benefit shareholders. In particular, discouraging some potential acquirers may increase shareholder wealth because it encourages others to pursue a combination with the target. This occurs because the number of competing acquirers is reduced and because resistance can signal that the target does not have access to a "white knight." This signalling effect may explain why share prices decline after management resists a takeover, even when such resistance is value-maximizing in the long run.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 17 (1986)
Issue (Month): 3 (Autumn)
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- Rose, Caspar, 2002. "Impact of Takeover Defenses on Managerial Incentives," Working Papers 2002-5, Copenhagen Business School, Department of Finance.
- Lambrecht, Bart M., 2004. "The timing and terms of mergers motivated by economies of scale," Journal of Financial Economics, Elsevier, vol. 72(1), pages 41-62, April.
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- Rose, Caspar, 2005. "Takeover Defenses' Influence on Managerial Incentives," International Review of Law and Economics, Elsevier, vol. 25(4), pages 556-577, December.
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- Sercu, Piet & Van Hulle, Cynthia, 1995. "Financing instruments, security design, and the efficiency of takeovers: A note," International Review of Law and Economics, Elsevier, vol. 15(4), pages 373-393, December.
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