Risk Arbitrage in Takeovers
The paper studies the role of risk arbitrage in takeover contests. We show that arbitrageurs have an incentive to accumulate non-trivial stakes in a company target of a takeover. For each arbitrageur, the knowledge of his own presence (and that he will tender a positive fraction of his shares) is an informational advantage which guarantees that there is a scope for trade with the other shareholders. In equilibrium, the number of arbitrageurs buying shares and the number of shares they buy are determined endogenously. The paper also presents a range of empirical implications, including the relationship between trading volume, takeover premium, bidder's toehold, liquidity of the shares and the probability that the takeover will succeed.
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- Jeremy Bulow & Ming Huang & Paul Klemperer, 1996.
"Toeholds and Takeovers,"
- Andrei Shleifer ad Robert W. Vishny, 1995.
"The Limits of Arbitrage,"
Harvard Institute of Economic Research Working Papers
1725, Harvard - Institute of Economic Research.
- Giammarino, Ronald & Heinkel, Robert & Hollifield, Burton, 1994. "Corporate Financing Decisions and Anonymous Trading," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(03), pages 351-377, September.
- Jarrell, Gregg A & Poulsen, Annette B, 1989. "Stock Trading before the Announcement of Tender Offers: Insider Trading or Market Anticipation?," Journal of Law, Economics and Organization, Oxford University Press, vol. 5(2), pages 225-48, Fall.
- Bradley, Michael & Desai, Anand & Kim, E. Han, 1988. "Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms," Journal of Financial Economics, Elsevier, vol. 21(1), pages 3-40, May.
- Larcker, David F. & Lys, Thomas, 1987. "An empirical analysis of the incentives to engage in costly information acquisition : The case of risk arbitrage," Journal of Financial Economics, Elsevier, vol. 18(1), pages 111-126, March.
- Giammarino, Ronald M & Heinkel, Robert L, 1986. " A Model of Dynamic Takeover Behavior," Journal of Finance, American Finance Association, vol. 41(2), pages 465-80, June.
- Holderness, Clifford G. & Sheehan, Dennis P., 1985. "Raiders or saviors? The evidence on six controversial investors," Journal of Financial Economics, Elsevier, vol. 14(4), pages 555-555, December.
- Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
- Mark Bagnoli, Barton L. Lipman, 1988. "Successful Takeovers without Exclusion," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 89-110.
- Lucian Arye Bebchuk, 1988.
"Takeover Bids below the Expected Value of Minority Shares,"
NBER Working Papers
2524, National Bureau of Economic Research, Inc.
- Bebchuk, Lucian Arye, 1989. "Takeover Bids below the Expected Value of Minority Shares," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(02), pages 171-184, June.
- Harrington, Joseph E, Jr & Prokop, Jacek, 1993. "The Dynamics of the Free-Rider Problem in Takeovers," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 851-82.
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