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Noise Trading and Takeovers

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  • Albert S. Kyle
  • Jean-Luc Vila

Abstract

A model of takeovers is investigated in which "noise trading" provides camouflage that makes it possible for a large corporate outsider to purchase enough shares at favorable prices so that takeovers become profitable. Although the model accommodates the possibility of dilution (Grossman and Hart, 1980) and a large incumbent shareholder (Shleifer and Vishny, 1986), neither dilution nor a large incumbent shareholder is necessary for costly takeovers to be profitable. Noise trading tends to encourage costly takeovers that otherwise would not occur and to discourage beneficial takeovers that otherwise would occur.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 22 (1991)
Issue (Month): 1 (Spring)
Pages: 54-71

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Handle: RePEc:rje:randje:v:22:y:1991:i:spring:p:54-71

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Cited by:
  1. Asquith, Daniel & Kieschnick, Robert, 1999. " An Examination of Initial Shareholdings in Tender Offer Bids," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 12(2), pages 171-88, March.
  2. John S. Earle & Csaba Kucsera & Almos Telegdy, 2003. "Ownership Concentration and Corporate Performance on the Budapest Stock Exchange: Do Too Many Cooks Spoil the Goulash?," Upjohn Working Papers and Journal Articles, W.E. Upjohn Institute for Employment Research 03-93, W.E. Upjohn Institute for Employment Research.
  3. Gary Gorton & Matthias Kahl, 1999. "Blockholder Identity, Equity Ownership Structures, and Hostile Takeovers," NBER Working Papers 7123, National Bureau of Economic Research, Inc.
  4. Earl A. Thompson & Charles R. Hickson, 2006. "Predicting bubbles," Global Business and Economics Review, Inderscience Enterprises Ltd, Inderscience Enterprises Ltd, vol. 8(3/4), pages 217-246.
  5. Richmond Mathews & Naveen Khanna, 2010. "Bear Raids and Short Sale Bans: Is Government Intervention Justifiable?," 2010 Meeting Papers, Society for Economic Dynamics 165, Society for Economic Dynamics.
  6. Kerry Back & Tao Li & Alexander Ljungqvist, 2013. "Liquidity and Governance," NBER Working Papers 19669, National Bureau of Economic Research, Inc.
  7. Gorton, Gary & Kahl, Matthias, 2001. "The Scarcity of Effective Monitors and Its Implications For Corporate Takeovers and Ownership Structures," University of California at Los Angeles, Anderson Graduate School of Management, Anderson Graduate School of Management, UCLA qt2tj5w4mt, Anderson Graduate School of Management, UCLA.
  8. Stephen G. Dimmock & William C. Gerken & Zoran Ivković & Scott J. Weisbenner, 2014. "Capital Gains Lock-In and Governance Choices," NBER Working Papers 20176, National Bureau of Economic Research, Inc.
  9. Deb, Pragyan & Koo, Bonsoo & Liu, Zijun, 2014. "Competition, premature trading and excess volatility," Journal of Banking & Finance, Elsevier, Elsevier, vol. 41(C), pages 178-193.
  10. Arturo Bris, 1998. "When Do Bidders Purchase a Toehold? Theory and Tests," Yale School of Management Working Papers, Yale School of Management ysm107, Yale School of Management, revised 01 Aug 2000.
  11. Dittmann, Ingolf, 2004. "Block Trading, Ownership Structure, and the Value of Corporate Votes," Papers, Humboldt-Universität Berlin, Center for Applied Statistics and Economics (CASE) 2004,13, Humboldt-Universität Berlin, Center for Applied Statistics and Economics (CASE).
  12. Gary Gorton & Matthias Kahl, 2002. "The Scarcity of Effective Monitors and Its Implications For Corporate Takeovers and Ownership Structures," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 02-30, Wharton School Center for Financial Institutions, University of Pennsylvania.
  13. Pierre Collin-Dufresne & Vyacheslav Fos, 2013. "Moral Hazard, Informed Trading, and Stock Prices," NBER Working Papers 19619, National Bureau of Economic Research, Inc.
  14. Vila, Jean-Luc, 1987. "Spéculation et intérêt collectif," L'Actualité Economique, Société Canadienne de Science Economique, Société Canadienne de Science Economique, vol. 63(2), pages 138-152, juin et s.
  15. Pierre Collin-Dufresne & Vyacheslav Fos, 2012. "Do prices reveal the presence of informed trading?," NBER Working Papers 18452, National Bureau of Economic Research, Inc.
  16. Pierre Collin-Dufresne & Vyacheslav Fos, 2012. "Insider Trading, Stochastic Liquidity and Equilibrium Prices," NBER Working Papers 18451, National Bureau of Economic Research, Inc.

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