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Real options signaling game models for dynamic acquisition under information asymmetry

Author

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  • Chi Man Leung

    (Hong Kong University of Science and Technology)

  • Yue Kuen Kwok

    (Hong Kong University of Science and Technology)

Abstract

We construct a real options signaling game model to analyze the impact of asymmetric information on the dynamic acquisition decision made by the aggressive acquirer firm and passive target firm in the takeover terms and timing. The target firm is assumed to have partial information on the synergy factor of the acquirer firm in generating the surplus value. Our dynamic acquisition game models are based on the market valuation of the surplus value of the acquirer and target firms, where the restructuring opportunities are modeled as exchange options. We analyze the various forms of equilibrium strategies on the deal and timing of takeover in the acquisition game and provide the mathematical characterization of the pooling and separating strategies adopted by the acquirer firm. We also determine the terms of takeover in the signaling game under varying levels of information asymmetry and synergy.

Suggested Citation

  • Chi Man Leung & Yue Kuen Kwok, 2018. "Real options signaling game models for dynamic acquisition under information asymmetry," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 41(1), pages 35-63, May.
    • Handle: RePEc:spr:decfin:v:41:y:2018:i:1:d:10.1007_s10203-018-0206-3
    DOI: 10.1007/s10203-018-0206-3
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    References listed on IDEAS

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    Cited by:

    1. Qiuqi Wang & Yue Kuen Kwok, 2019. "Signaling game models of equity financing under information asymmetry and finite project life," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 6(01), pages 1-38, March.
    2. Miyata, Ryo & Suzuki, Teruyoshi & Yagi, Kyoko, 2022. "The Dynamics of Takeovers through Exchange Offers in the Presence of Competition," Discussion paper series. A 362, Graduate School of Economics and Business Administration, Hokkaido University.

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    More about this item

    Keywords

    Decision analysis; Real options signaling game; Dynamic acquisition; Information asymmetry; Perfect Bayesian equilibrium;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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