Share Repurchase and Takeover Deterrence
This article examines the use of share repurchase as a takeover deterrent. The main result is that in the presence of an upward-sloping supply curve for shares, the takeover cost to the acquirer can be greater if the target firm distributes cash through share repurchase than if it chooses either to pay a cash dividend or to do nothing. Because shareholders willing to tender in the repurchase are systematically those with the lowest valuations, the repurchase skews the distribution of remaining shareholders toward a more expensive pool. Examining the equilibrium behavior of all players in a stylized takeover game, conditions exist under which repurchase deters takeover. The example of capital gains taxation is then considered, when investors with different basis values impute different reservation values to their holding. Repurchase is more effective as a deterrent when it alters the marginal shareholder, when shareholder heterogeneity is large, and when the private benefit of control from takeover isn't too large.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 22 (1991)
Issue (Month): 1 (Spring)
|Contact details of provider:|| Web page: http://www.rje.org|
|Order Information:||Web: https://editorialexpress.com/cgi-bin/rje_online.cgi|
When requesting a correction, please mention this item's handle: RePEc:rje:randje:v:22:y:1991:i:spring:p:72-88. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.