Preemptive Bidding, Target Resistance, and Takeover Premiums

Theodosios Dimopoulos and Stefano Sacchetto
Additional contact information
Theodosios Dimopoulos: University of Lausanne and Swiss Finance Institute
Stefano Sacchetto: Tepper School of Business, Carnegie Mellon University

No 11-48, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper empirically evaluates two possible sources of large takeover premiums: pre-emptive bidding and target resistance. We develop an auction model that features costly sequential entry of bidders in takeover contests and that encompasses both explanations. We estimate the model parameters using simulated method of moments for a sample of US target firms in the period 1988-2006. We find that target resistance is the main determinant of takeover premiums in 74% of successful single bidder-contests. Simulation experiments also show that, on average, bidders-costs of entry are 2.8% of the target's preacquisition market capitalization, and the initial bidders' valuation for the target company is 17% higher than the valuation of their rivals.

Keywords: Merger; auctions; target resistance; preemptive bidding; structural estimation (search for similar items in EconPapers)
JEL-codes: D44 G34 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2011-10
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1945199 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1148

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().