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Preemptive Bidding, Target Resistance, and Takeover Premiums

Author

Listed:
  • Theodosios DIMOPOULOS

    (University of Lausanne and Swiss Finance Institute)

  • Stefano SACCHETTO

    (Tepper School of Business, Carnegie Mellon University)

Abstract

This paper empirically evaluates two possible sources of large takeover premiums: pre-emptive bidding and target resistance. We develop an auction model that features costly sequential entry of bidders in takeover contests and that encompasses both explanations. We estimate the model parameters using simulated method of moments for a sample of US target firms in the period 1988-2006. We find that target resistance is the main determinant of takeover premiums in 74% of successful single bidder-contests. Simulation experiments also show that, on average, bidders-costs of entry are 2.8% of the target's preacquisition market capitalization, and the initial bidders' valuation for the target company is 17% higher than the valuation of their rivals.

Suggested Citation

  • Theodosios DIMOPOULOS & Stefano SACCHETTO, 2011. "Preemptive Bidding, Target Resistance, and Takeover Premiums," Swiss Finance Institute Research Paper Series 11-48, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1148
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    File URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1945199
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    Cited by:

    1. Taylor, Lucian A., 2013. "CEO wage dynamics: Estimates from a learning model," Journal of Financial Economics, Elsevier, vol. 108(1), pages 79-98.

    More about this item

    Keywords

    Merger; auctions; target resistance; preemptive bidding; structural estimation;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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