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Can preemptive bidding in takeover auctions be socially optimal? Yes it can

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  • Dodonova, Anna
  • Khoroshilov, Yuri

Abstract

This paper analyzes a model of preemptive jump bidding in private value takeover auctions with entry costs. It shows that when the second bidder owns a fraction of the target firm preemptive jump bidding leads to a higher social surplus, improves the expected profit of both bidders and reduces the expected final price. Such a toehold also leads to higher jump bids. The model implies that preemptive bidding hurts the minority shareholders but benefits the large shareholder of the target firm.

Suggested Citation

  • Dodonova, Anna & Khoroshilov, Yuri, 2014. "Can preemptive bidding in takeover auctions be socially optimal? Yes it can," The North American Journal of Economics and Finance, Elsevier, vol. 27(C), pages 34-47.
  • Handle: RePEc:eee:ecofin:v:27:y:2014:i:c:p:34-47
    DOI: 10.1016/j.najef.2013.11.001
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    References listed on IDEAS

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    Cited by:

    1. Khoroshilov, Yuri, 2015. "An experimental study of signaling in auctions with a flexible reserve price," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 124-137.

    More about this item

    Keywords

    Jump bidding; Toeholds; Takeover auction;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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