Using Auction Theory to Inform Takeover Regulation
This paper focuses on certain mechanisms that govern the sale of corporate assets. Under Delaware law, when a potential acquirer makes a serious bid for a target, the target's Board of Directors is required to act as would "auctioneers charged with getting the best price for the stock- holders at a sale of the company." The Delaware courts' preference for auctions follows from two premises. First, a firm's managers should maximize the value of their shareholders' investment in the company. Second, auctions maximize shareholder returns. The two premises together imply that a target's board should conduct an auction when at least two firms would bid sums that are nontrivially above the target's prebid market price.
|Date of creation:||1991|
|Date of revision:||09 Jun 1998|
|Publication status:||Published in Journal of Law, Economics and Organization, 7:1, Spring 1991, pages 27-53.|
|Contact details of provider:|| Postal: Economics Department, University of Maryland, College Park, MD 20742-7211|
Phone: (202) 318-0520
Fax: (202) 318-0520
Web page: http://www.cramton.umd.edu
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Daniel R. Vincent, 1990. "Dynamic Auctions," Review of Economic Studies, Oxford University Press, vol. 57(1), pages 49-61.
- Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
- Steven Kaplan, 1989. "Management Buyouts: Evidence on Taxes as a Source of Value," Journal of Finance, American Finance Association, vol. 44(3), pages 611-632, 07.
- Randall Morck & Andrei Shleifer & Robert W. Vishny, 1988. "Characteristics of Targets of Hostile and Friendly Takeovers," NBER Chapters,in: Corporate Takeovers: Causes and Consequences, pages 101-136 National Bureau of Economic Research, Inc.
- Schwartz, Alan, 1986. "Search Theory and the Tender Offer Auction," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 229-253, Fall.
- Michael J. Fishman, 1988. "A Theory of Preemptive Takeover Bidding," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 88-101, Spring.
- Harstad, Ronald M, 1990. "Alternative Common-Value Auction Procedures: Revenue Comparisons with Free Entry," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 421-429, April.
- Lloyd, William P. & Modani, Naval K. & Hand, John H., 1987. "The effect of the degree of ownership control on firm diversification, market value, and merger activity," Journal of Business Research, Elsevier, vol. 15(4), pages 303-312, August.
- French, Kenneth R & McCormick, Robert E, 1984. "Sealed Bids, Sunk Costs, and the Process of Competition," The Journal of Business, University of Chicago Press, vol. 57(4), pages 417-441, October.
- Alan J. Auerbach, 1988. "Corporate Takeovers: Causes and Consequences," NBER Books, National Bureau of Economic Research, Inc, number auer88-1.
- Milgrom, Paul R & Weber, Robert J, 1982.
"A Theory of Auctions and Competitive Bidding,"
Econometric Society, vol. 50(5), pages 1089-1122, September.
- Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Hirshleifer, David, 1989. "Facilitation of Competing Bids and the Price of a Takeover Target," University of California at Los Angeles, Anderson Graduate School of Management qt2496649g, Anderson Graduate School of Management, UCLA.
- Kaplan, Steven, 1989. " Management Buyouts: Evidence on Taxes as a," Journal of Finance, American Finance Association, vol. 44(3), pages 611-632, July.
- Nathan, Kevin S. & O'Keefe, Terrence B., 1989. "The rise in takeover premiums : An exploratory study," Journal of Financial Economics, Elsevier, vol. 23(1), pages 101-119, June.
- Michael C. Jensen, 1987. "The free cash flow theory of takeovers: a financial perspective on mergers and acquisitions and the economy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 31, pages 102-148.
- Rothkopf, Michael H & Teisberg, Thomas J & Kahn, Edward P, 1990. "Why Are Vickrey Auctions Rare?," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 94-109, February.
- Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
- Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-540, September.
- Ralph A. Walkling & Michael S. Long, 1984. "Agency Theory, Managerial Welfare, and Takeover Bid Resistance," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 54-68, Spring.
- Asher Wolinsky, 1988. "Dynamic Markets with Competitive Bidding," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 71-84.
- McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
- Bhattacharyya, S., 1990. "The Analytics Of Takeover Bidding: Initial Bids And Their Premia," GSIA Working Papers 89-90-03, Carnegie Mellon University, Tepper School of Business.
- Spulber, Daniel F, 1990. "Auctions and Contract Enforcement," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(2), pages 325-344, Fall. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:pcc:pccumd:91jleo. 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: (Peter Cramton)
If references are entirely missing, you can add them using this form.