Can preemptive bidding in takeover auctions be socially optimal? Yes it can

Anna Dodonova and Yuri Khoroshilov

The North American Journal of Economics and Finance, 2014, vol. 27, issue C, 34-47

Abstract: This paper analyzes a model of preemptive jump bidding in private value takeover auctions with entry costs. It shows that when the second bidder owns a fraction of the target firm preemptive jump bidding leads to a higher social surplus, improves the expected profit of both bidders and reduces the expected final price. Such a toehold also leads to higher jump bids. The model implies that preemptive bidding hurts the minority shareholders but benefits the large shareholder of the target firm.

Keywords: Jump bidding; Toeholds; Takeover auction (search for similar items in EconPapers)
JEL-codes: C72 D44 G34 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:27:y:2014:i:c:p:34-47

DOI: 10.1016/j.najef.2013.11.001

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