Start-ups, incumbents, and the effects of takeover competition

Jan U. Becker, Michel Clement and Markus Nöth

Journal of Business Research, 2016, vol. 69, issue 12, 5925-5933

Abstract: Recent acquisitions involving Tumblr and Instagram have demonstrated that the takeover of an unlisted start-up company can offer enormous financial benefits to its (former) stakeholders. Considering the multimillion-dollar amounts paid for start-ups with no existing and highly uncertain future revenues, we investigate the process and outcome of negotiation dynamics in the context of takeovers. In a series of experiments, we show that even with a low level of uncertainty about a start-up's value and its financial resources, start-ups can influence bidders' behavior and consequently the start-ups' valuation. The results indicate that incumbents' bidding behavior is driven by the perceived threat level with respect to the start-up's business activities as well as by the uncertainty with respect to other incumbents' bidding behavior—drivers that are subject to activities by the start-ups' management. Interestingly, the effect even exists if incumbents clearly know that initiating a bidding process will very likely lead to losses.

Keywords: Applied decision analysis; Bidding behavior; Competitive strategy; Experiments (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:69:y:2016:i:12:p:5925-5933

DOI: 10.1016/j.jbusres.2016.05.005

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