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Just Enough or All: Selling a Firm

Listed author(s):
  • Mehmet Ekmekci
  • Nenad Kos
  • Rakesh Vohra

We consider the problem of selling a firm to a single buyer. The buyer privately knows post-sale cash flows and the benefits of control. Unlike the case where buyer's private information is one-dimensional, the optimal mechanism is a menu of tuples of cash-equity mixtures. When the seller wants to screen finely with respect to the private benefits, he makes an offer for the smallest fraction of the company that facilitates the transfer of control. When he wants to screen finely with respect to cash flows, he makes an offer for all the shares of the company.

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File URL: https://www.aeaweb.org/articles?id=10.1257/mic.20140143
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File URL: https://www.aeaweb.org/articles/attachments?retrieve=eKnwTi0l3Mhw1qS5JnglYJFKaUFAxt0G
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Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 8 (2016)
Issue (Month): 3 (August)
Pages: 223-256

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Handle: RePEc:aea:aejmic:v:8:y:2016:i:3:p:223-56
Note: DOI: 10.1257/mic.20140143
Contact details of provider: Web page: https://www.aeaweb.org/aej-micro
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  1. Samuelson, William, 1987. "Auctions with Contingent Payments: Comment," American Economic Review, American Economic Association, vol. 77(4), pages 740-745, September.
  2. Peter M. DeMarzo & Ilan Kremer & Andrzej Skrzypacz, 2005. "Bidding with Securities: Auctions and Security Design," American Economic Review, American Economic Association, vol. 95(4), pages 936-959, September.
  3. Dodd, Peter & Warner, Jerold B., 1983. "On corporate governance : A study of proxy contests," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 401-438, April.
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  5. Hansen, Robert G, 1985. "Auctions with Contingent Payments," American Economic Review, American Economic Association, vol. 75(4), pages 862-865, September.
  6. Eckbo, B Espen & Giammarino, Ronald M & Heinkel, Robert L, 1990. "Asymmetric Information and the Medium of Exchange in Takeovers: Theory and Tests," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 651-675.
  7. Renée Birgit Adams & Francesca Cornelli & Leonardo Felli, 2012. "How to Sell a (Bankrupt) Company," International Review of Finance, International Review of Finance Ltd., vol. 12(2), pages 197-226, 06.
  8. Fishman, Michael J, 1989. " Preemptive Bidding and the Role of the Medium of Exchange in Acquisitions," Journal of Finance, American Finance Association, vol. 44(1), pages 41-57, March.
  9. Berkovitch, Elazar & Narayanan, M P, 1990. "Competition and the Medium of Exchange in Takeovers," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 153-174.
  10. Kos, Nenad & Messner, Matthias, 2013. "Extremal incentive compatible transfers," Journal of Economic Theory, Elsevier, vol. 148(1), pages 134-164.
  11. Mehmet Ekmekci & Nenad Kos, 2016. "Information in Tender Offers With a Large Shareholder," Econometrica, Econometric Society, vol. 84, pages 87-139, 01.
  12. Yeon-Koo Che & Jinwoo Kim, 2010. "Bidding with Securities: Comment," American Economic Review, American Economic Association, vol. 100(4), pages 1929-1935, September.
  13. McAfee, R. Preston & McMillan, John, 1988. "Multidimensional incentive compatibility and mechanism design," Journal of Economic Theory, Elsevier, vol. 46(2), pages 335-354, December.
  14. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  15. Luigi Zingales, 1995. "Insider Ownership and the Decision to Go Public," Review of Economic Studies, Oxford University Press, vol. 62(3), pages 425-448.
  16. Che, Yeon-Koo & Gale, Ian, 2000. "The Optimal Mechanism for Selling to a Budget-Constrained Buyer," Journal of Economic Theory, Elsevier, vol. 92(2), pages 198-233, June.
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