Strategic Information Transmission and Efficient Corporate Control

Paul Voß () and Marius Kulms

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We present a model of corporate takeovers in which both, a potential acquirer and incumbent management have private information about the firm value under their respective leadership. Despite the two-sided asymmetric information and endogenously misaligned interests of shareholders and incumbent management, first-best control allocation is feasible if incumbent management can strategically communicate with shareholders. However, shareholders prefer access to more information than revealed in equilibrium. This demand for information leads to inefficiently few takeovers. The model provides implications for the regulation of disclosure requirements and fairness opinions, as well as empirical predictions that link executive compensation to takeover outcomes.

Keywords: Communication; cheap talk; takeover; tender o er; signaling (search for similar items in EconPapers)
JEL-codes: D82 D83 G34 G38 (search for similar items in EconPapers)
Pages: 51
Date: 2020-06
New Economics Papers: this item is included in nep-cfn, nep-gth and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2020_180

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