Effects of seller’s information disclosure in equity auctions requiring post-auction investment

Takeharu Sogo

International Journal of Industrial Organization, 2017, vol. 55, issue C, 166-181

Abstract: We consider a moral hazard issue inherent in the equity auctions of assets such as oil and gas leases and corporate takeovers. After the auction, the winning bidder decides whether to make follow-up investments in the acquired asset and makes the equity payment out of the revenue from it according to the auction outcome. Before the auction, the seller holds private information about the possible returns on that investment and must decide whether to disclose it. Larger equity payments undermine incentives to invest, reducing the impact of information revealed by the seller on expected values of the asset to a winning bidder. Thus, information disclosure makes bids less aggressive in expectation. Expected seller revenues may be higher when she does not disclose her private information than when she commits to publicly announcing it regardless of whether it is good or bad.

Keywords: Information disclosure; Equity auctions; Post-auction investment; Moral hazard (search for similar items in EconPapers)
JEL-codes: D44 D82 G10 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:55:y:2017:i:c:p:166-181

DOI: 10.1016/j.ijindorg.2017.09.005

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