IDEAS home Printed from https://ideas.repec.org/a/rje/randje/v22y1991ispringp72-88.html
   My bibliography  Save this article

Share Repurchase and Takeover Deterrence

Author

Listed:
  • Laurie Simon Bagwell

Abstract

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.

Suggested Citation

  • Laurie Simon Bagwell, 1991. "Share Repurchase and Takeover Deterrence," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 72-88, Spring.
  • Handle: RePEc:rje:randje:v:22:y:1991:i:spring:p:72-88
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0741-6261%28199121%2922%3A1%3C72%3ASRATD%3E2.0.CO%3B2-H&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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: (). General contact details of provider: https://www.rje.org .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.