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Stock selling during takeovers

Guillem Ordóñez-Calafí and John Thanassoulis ()
Authors registered in the RePEc Author Service: Guillem Ordóñez Calafí ()

Journal of Corporate Finance, 2020, vol. 60, issue C

Abstract: Stock sales during takeover negotiations weaken the target board's ability to recommend against the takeover, i.e., to resist. Sophisticated shareholders therefore face a coordination problem when deciding whether to sell-out early; and their actions generate a feedback loop between trading volumes and takeover outcomes. Bidding firms, anticipating the pressurising effect of future share sales on the target board, may reduce their bids. We study these tensions theoretically. We find that increasing the influence of shareholders during the bidding process lowers equilibrium bids; elongates the bidding process; but raises the overall probability of bid acceptance; and raises expected premia for unsophisticated shareholders.

Keywords: Takeovers; Takeover resistance; Shareholder coordination; Market feedback; Global games (search for similar items in EconPapers)
JEL-codes: C72 G34 G38 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jcorpfin.2019.101550

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