Preemptive bidding, target resistance, and takeover premiums

Theodosios Dimopoulos () and Stefano Sacchetto

Journal of Financial Economics, 2014, vol. 114, issue 3, 444-470

Abstract: We evaluate empirically two sources of large takeover premiums: preemptive bidding and target resistance. We develop an auction model that features costly sequential entry of bidders in takeover contests and encompasses both explanations. We estimate the model parameters by simulated method of moments for a sample of US takeovers. Our estimates imply that target resistance explains the entire magnitude of the premium in 74% of successful single-bidder contests. Simulation experiments show that initial bidders have, on average, a higher valuation for the target than rival bidders, so that a relatively low initial bid is sufficient to deter a rival from entry.

Keywords: Mergers and acquisitions; Auctions; Target resistance; Preemptive bidding; Structural estimation (search for similar items in EconPapers)
JEL-codes: D44 G34 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (29)

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Working Paper: Preemptive Bidding, Target Resistance, and Takeover Premiums (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:114:y:2014:i:3:p:444-470

DOI: 10.1016/j.jfineco.2014.07.013

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