We analyze bidding incentives and present evidence on takeover premiums in mandatory Swedish bankruptcy auctions, where three-quarters of the firms are sold as going concerns. The bankrupt firms’ main creditors (banks) cannot bid in the auction and thus cannot directly influence the winning price. However, we find that the banks often finance bidders. We show that the optimal bid strategy for a bank-bidder coalition mimics a monopolist sales price, in effect getting around the institutional constraint on direct bank bidding. The final auction premium increases with a measure of the bank’s debt impairness observed at the beginning of the auction. Cross-sectional regressions with the auction premium as dependent variable support this prediction. There is no empirical support for the proposition that the auctions lead to fire-sale prices, where we use the number of bidders, the degree of industry-wide financial distress, and the business cycle as proxies for auction demand. Moreover, premiums in transactions where insiders repurchase the firm (salebacks) are on average indistinguishable from premiums in sales to company outsiders, which fails to support self-dealing arguments.
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Paper provided by Department of Finance and Management Science, Norwegian School of Economics and Business Administration in its series Discussion Papers with number
2004/16.
Length: 48 pages Date of creation: 17 Dec 2004 Date of revision: Handle: RePEc:hhs:nhhfms:2004_016
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Philippe Aghion & Oliver D. Hart & John Moore, 1994.
"The Economics of Bankruptcy Reform,"
NBER Chapters,
in: Transition in Eastern Europe, Volume 2, The, pages 215-244
National Bureau of Economic Research, Inc.
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Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Betton, Sandra & Eckbo, B Espen & Thorburn, Karin S, 2005.
"The Toehold Puzzle,"
CEPR Discussion Papers
5084, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted)
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