Financing bidders in takeover contests

Vladimir Vladimirov

Journal of Financial Economics, 2015, vol. 117, issue 3, 534-557

Abstract: This paper argues that endogenizing how acquirers finance their cash bids is just as important for understanding bidding in takeovers as endogenizing acquirers׳ payment method choice. The paper shows that acquirers finance their cash bids with equity only if they lack access to competitive financing. This leads to underbidding and lower takeover premiums. Conversely, acquirers with access to competitive financing use debt and overbid. Endogenizing the payment method reveals that security (e.g., stock) bids carry lower premiums than cash bids, backed by competitive financing. These insights find empirical support and could help explain existing evidence, which contradicts prior theory.

Keywords: Takeover premiums; Financing bidders; Takeover contests; Financial constraints; Security design (search for similar items in EconPapers)
JEL-codes: D44 G32 G34 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:117:y:2015:i:3:p:534-557

DOI: 10.1016/j.jfineco.2015.06.002

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