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(Ir)responsible Takeovers

Author

Listed:
  • Bond, Philip
  • Levit, Doron

Abstract

We analyze takeover efficiency when socially conscious acquirers and target shareholders respond to externalities. Despite the Grossman-Hart ``holdout'' problem and free-riding in externality production, takeovers are socially efficient when target shareholders are consequentialist and acquirers are purely profit-driven. More generally, we identify a balanced-preferences condition under which externalities are fully internalized. Both increases and decreases in the strength of externality-preferences disrupt this balance and lead to inefficiency. We apply our framework to pre-takeover trading dynamics, exchange offers, leveraged buyouts, minority shareholder protections, and the strategic use of social responsibility as both a takeover defense and a bidding tactic

Suggested Citation

  • Bond, Philip & Levit, Doron, 2024. "(Ir)responsible Takeovers," CEPR Discussion Papers 19452, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19452
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    File URL: https://cepr.org/publications/DP19452
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    Keywords

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    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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