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If at first you don't succeed: an experimental investigation of the impact of repetition options on corporate takeovers

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Author Info
Ann B. Gillette
Thomas H. Noe

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Abstract

This paper models, and experimentally simulates, the free-rider problem in a takeover when the raider has the option to “resolicit,” that is, to make a new offer after an offer has been rejected. In theory, the option to resolicit, by lowering offer credibility, increases the dissipative losses associated with free riding. In practice, the outcomes of our experiment, while quite closely tracking theory in the effective absence of an option to resolicit, differed dramatically from theory when a significant probability of resolicitation was introduced: The option to resolicit reduced the costs of free riding fairly substantially. Both the raider offers and the shareholder tendering responses generally exceeded equilibrium predictions.

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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2000-9.

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Date of creation: 2000
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Handle: RePEc:fip:fedawp:2000-9

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Related research
Keywords: Corporations - Finance ; Game theory;

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  7. Palfrey, Thomas R & Prisbrey, Jeffrey E, 1997. "Anomalous Behavior in Public Goods Experiments: How Much and Why?," American Economic Review, American Economic Association, vol. 87(5), pages 829-46, December. [Downloadable!] (restricted)
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    Other versions:
  14. Ausubel, Lawrence M. & Deneckere, Raymond J., 1989. "A direct mechanism characterization of sequential bargaining with one-sided incomplete information," Journal of Economic Theory, Elsevier, vol. 48(1), pages 18-46, June. [Downloadable!] (restricted)
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  18. Cadsby, C.B. & Maynes, E., 1998. "Corporate Takeovers in the Laboratory when Shareholders Own More than One Share," Working Papers 1998-3, University of Guelph, Department of Economics.
  19. Gul, Faruk & Sonnenschein, Hugo & Wilson, Robert, 1986. "Foundations of dynamic monopoly and the coase conjecture," Journal of Economic Theory, Elsevier, vol. 39(1), pages 155-190, June. [Downloadable!] (restricted)
  20. Kale, Jayant R & Noe, Thomas H, 1997. "Unconditional and Conditional Takeover Offers: Experimental Evidence," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 10(3), pages 735-66.
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