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Stock Price Manipulation Through Takeover Bids

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Author Info
Mark Bagnoli
Barton L. Lipman

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Abstract

The announcement of a takeover bid causes significant increases in the target's stock price, but the possibility that a bid is motivated to cause this increase so that the bidder can sell his holdings has not been studied. We show that stock price manipulation lowers the prebid stock price. Furthermore, if there is little takeover activity, manipulation increases takeover bids and prevents some efficient takeovers. In this case, stockholders prefer to ban it. However, if there is a high level of takeover activity, serious bidders are better off and social surplus is increased by the possibility of manipulation. In this case, stockholders may oppose a ban.

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File URL: http://links.jstor.org/sici?sici=0741-6261%28199621%2927%3A1%3C124%3ASPMTTB%3E2.0.CO%3B2-A&origin=repec
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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 27 (1996)
Issue (Month): 1 (Spring)
Pages: 124-147
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Handle: RePEc:rje:randje:v:27:y:1996:i:spring:p:124-147

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  1. Archishman Chakraborty & Bilge Yilmaz, . "Nested Information and Manipulation in Financial Markets," Rodney L. White Center for Financial Research Working Papers 6-00, Wharton School Rodney L. White Center for Financial Research. [Downloadable!]
    Other versions:
  2. Archishman Chakraborty & Bilge Yilmaz, . "Informed Manipulation," Rodney L. White Center for Financial Research Working Papers 07-00, Wharton School Rodney L. White Center for Financial Research. [Downloadable!]
    Other versions:
  3. Nevzat Eren & Han N. Ozsoylev, 2008. "Hype and Dump Manipulation," OFRC Working Papers Series 2008fe08, Oxford Financial Research Centre. [Downloadable!]
  4. Itay Goldstein & Alexander Gümbel, 2002. "Manipulation, the allocational role of prices and production externalities," OFRC Working Papers Series 2002fe02, Oxford Financial Research Centre. [Downloadable!]
  5. Güray Küçükkocaoglu, 2008. "Intra-Day Stock Returns and Close-End Price Manipulation in the Istanbul Stock Exchange," Frontiers in Finance and Economics, Lille Graduate School of Management, vol. 5(1), pages 46-84, April. [Downloadable!]
  6. Jeremy I. Bulow & Paul D. Klemperer, 2007. "When are Auctions Best?," NBER Working Papers 13268, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Matthew Pritsker, 2005. "Large investors: implications for equilibrium asset, returns, shock absorption, and liquidity," Finance and Economics Discussion Series 2005-36, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  8. Christian Ewerhart & Nuno Cassola & Steen Ejerskov & Natacha Valla, 2007. "Manipulation in Money Markets," International Journal of Central Banking, International Journal of Central Banking, vol. 3(1), pages 113-148, March. [Downloadable!]
    Other versions:
  9. Sander, Harald & Kleimeier, Stefanie, 2006. "Interest Rate Pass-Through In the Common Monetary Area of the SACU Countries," Research Memoranda 023, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
    Other versions:
  10. Helena Veiga & Marc Vorsatz, 2008. "Aggregation and dissemination of information in experimental asset markets in the presence of a manipulator," Statistics and Econometrics Working Papers ws084110, Universidad Carlos III, Departamento de Estadística y Econometría. [Downloadable!]
  11. Christian Ewerhart & Nuno Cassola & Steen Ejerskov & Natacha Valla, 2004. "Sporadic manipulation in money markets with central bank standing facilities," Working Paper Series 399, European Central Bank. [Downloadable!]
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