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Takeover Bidding with Signaling Incentives

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  • Tingjun Liu

Abstract

This study examines takeover bidding contests in which privately informed bidders have incentives to signal high values to uninformed investors through their bids. Such incentives could arise in a large number of situations from financing and managerial concerns. The findings show that the dynamic nature of the takeover contests plays a critical role in the signaling process, allowing bidders to signal high values in two ways. Such signaling bears important consequences on the bids, the allocative efficiency, the target's and bidders' profits, as well as the winner's post-takeover stock price performance and volatility. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Suggested Citation

  • Tingjun Liu, 2012. "Takeover Bidding with Signaling Incentives," Review of Financial Studies, Society for Financial Studies, vol. 25(2), pages 522-556.
  • Handle: RePEc:oup:rfinst:v:25:y:2012:i:2:p:522-556
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    File URL: http://hdl.handle.net/10.1093/rfs/hhr102
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    Cited by:

    1. Vladimirov, Vladimir, 2015. "Financing bidders in takeover contests," Journal of Financial Economics, Elsevier, vol. 117(3), pages 534-557.
    2. Liu, Tingjun, 2016. "Optimal equity auctions with heterogeneous bidders," Journal of Economic Theory, Elsevier, vol. 166(C), pages 94-123.
    3. Schneck, Colin & Bessler, Wolfgang & Zimmermann, Jan, 2014. "Bidder Contests in International Mergers and Acquisitions: The Impact of Toeholds, Preemptive Bidding, and Termination Fees," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100493, Verein für Socialpolitik / German Economic Association.
    4. Bos, Olivier & Truyts, Tom, 2017. "Auctions with Signaling Concerns," MPRA Paper 79181, University Library of Munich, Germany.
    5. Mike Burkart & Samuel Lee, 2010. "Signaling in Tender Offer Games," FMG Discussion Papers dp655, Financial Markets Group.
    6. Berg, Aron, 2017. "Misvaluation and Financial Constraints: Method of Payment and Buyer Identity in Mergers & Acquisitions," Working Paper Series 1157, Research Institute of Industrial Economics.
    7. Olivier Bos & Francisco Gomez-Martinez & Sander Onderstal & Tom Truyts, 2017. "Signaling in auctions: experimental evidence," Working Papers Department of Economics 585499, KU Leuven, Faculty of Economics and Business, Department of Economics.
    8. Mike Burkart & Samuel Lee, 2015. "Signalling to Dispersed Shareholders and Corporate Control," Review of Economic Studies, Oxford University Press, vol. 82(3), pages 922-962.
    9. Bessler, Wolfgang & Schneck, Colin & Zimmermann, Jan, 2015. "Bidder contests in international mergers and acquisitions: The impact of toeholds, preemptive bidding, and termination fees," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 4-23.
    10. repec:eee:corfin:v:50:y:2018:i:c:p:180-202 is not listed on IDEAS

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