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Start-ups, incumbents, and the effects of takeover competition

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  • Becker, Jan U.
  • Clement, Michel
  • Nöth, Markus

Abstract

Recent acquisitions involving Tumblr and Instagram have demonstrated that the takeover of an unlisted start-up company can offer enormous financial benefits to its (former) stakeholders. Considering the multimillion-dollar amounts paid for start-ups with no existing and highly uncertain future revenues, we investigate the process and outcome of negotiation dynamics in the context of takeovers. In a series of experiments, we show that even with a low level of uncertainty about a start-up's value and its financial resources, start-ups can influence bidders' behavior and consequently the start-ups' valuation. The results indicate that incumbents' bidding behavior is driven by the perceived threat level with respect to the start-up's business activities as well as by the uncertainty with respect to other incumbents' bidding behavior—drivers that are subject to activities by the start-ups' management. Interestingly, the effect even exists if incumbents clearly know that initiating a bidding process will very likely lead to losses.

Suggested Citation

  • Becker, Jan U. & Clement, Michel & Nöth, Markus, 2016. "Start-ups, incumbents, and the effects of takeover competition," Journal of Business Research, Elsevier, vol. 69(12), pages 5925-5933.
    • Handle: RePEc:eee:jbrese:v:69:y:2016:i:12:p:5925-5933
    DOI: 10.1016/j.jbusres.2016.05.005
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    Cited by:

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    3. Aaldering, Lukas Jan & Song, Chie Hoon, 2021. "Of leaders and laggards - Towards digitalization of the process industries," Technovation, Elsevier, vol. 105(C).

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