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Just Enough or All: Selling a Firm

Author

Listed:
  • Mehmet Ekmekci
  • Nenad Kos
  • Rakesh Vohra

Abstract

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.

Suggested Citation

  • Mehmet Ekmekci & Nenad Kos & Rakesh Vohra, 2016. "Just Enough or All: Selling a Firm," American Economic Journal: Microeconomics, American Economic Association, vol. 8(3), pages 223-256, August.
    • Handle: RePEc:aea:aejmic:v:8:y:2016:i:3:p:223-56
    Note: DOI: 10.1257/mic.20140143
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    Cited by:

    1. Tingjun Liu & Dan Bernhardt, 2021. "Rent Extraction with Securities Plus Cash," Journal of Finance, American Finance Association, vol. 76(4), pages 1869-1912, August.
    2. Tingjun Liu & Dan Bernhardt, 2025. "Auctioning Control and Cash‐Flow Rights Separately," Econometrica, Econometric Society, vol. 93(3), pages 859-889, May.
    3. Marco Pagnozzi & Antonio Rosato, 2014. "Entry by Takeover: Auctions vs. Negotiations," CSEF Working Papers 353, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    4. Liu, Tingjun & Bernhardt, Dan, 2019. "Optimal equity auctions with two-dimensional types," Journal of Economic Theory, Elsevier, vol. 184(C).
    5. Kiho Yoon, 2020. "Bilateral trading with contingent contracts," International Journal of Game Theory, Springer;Game Theory Society, vol. 49(2), pages 445-461, June.
    6. Tymofiy Mylovanov & Andriy Zapechelnyuk, 2017. "Optimal Allocation with Ex Post Verification and Limited Penalties," American Economic Review, American Economic Association, vol. 107(9), pages 2666-2694, September.

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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