Takeover Defenses and Dilution: A Welfare Analysis

Atreya Chakraborty () and Richard Arnott ()

No 351., Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: This paper highlights the role of takeover defenses in the acquisition process. If managerial defensive effort is fixed, the unregulated level of takeover activity is lower than socially desirable since shareholders regard the financial incentives given to raiders to stimulate takeover activity as a cost, while society views them as a transfer. We show that this result no longer holds if defensive effort is variable -- the unregulated market for corporate control will generate excessive takeovers. One implication of our analysis is that in the presence of substantial anti-takeover related expenditures the gains from takeover will be overestimated. These gains include the benefits from dismantling defenses which were installed because of the takeover threat.

Keywords: merger and acquisition; cost of takeover; asset dilution (search for similar items in EconPapers)
JEL-codes: G34 (search for similar items in EconPapers)
Date: 1997-07-01, Revised 2000-10-06
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Journal Article: Takeover Defenses and Dilution: A Welfare Analysis (2001)
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