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Negotiations under the threat of an auction

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Listed:
  • Aktas, Nihat
  • de Bodt, Eric
  • Roll, Richard

Abstract

Many takeovers occur after one-on-one negotiations, which suggests a troubling lack of competition. We seek to determine whether acquirers in such friendly deals are truly insulated from competitive pressures. We study two countervailing influences: (1) potential but unobserved latent competition, i.e., the likelihood that rival bidders could appear, and (2) anticipated auction costs when negotiations fail. Using various proxies, we find that latent competition increases the bid premium offered in negotiated deals and that auction costs reduce the premium.

Suggested Citation

  • Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2010. "Negotiations under the threat of an auction," Journal of Financial Economics, Elsevier, vol. 98(2), pages 241-255, November.
    • Handle: RePEc:eee:jfinec:v:98:y:2010:i:2:p:241-255
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    References listed on IDEAS

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