Entry and competition in takeover auctions

Matthew Gentry and Caleb Stroup

Journal of Financial Economics, 2019, vol. 132, issue 2, 298-324

Abstract: We estimate the degree of uncertainty faced by potential bidders in takeover auctions and quantify how it affects prices in auctions and negotiations. The high degree of uncertainty revealed by our structural estimation encourages entry in auctions but reduces a target’s bargaining power in negotiations. In the aggregate, auctions and negotiations produce similar prices, even though auctions are preferred in takeover markets with high uncertainty, while the reverse is true for negotiations. Firm characteristics predict pre-entry uncertainty and thus are informative about the relative performance of auctions and negotiations for individual targets.

Keywords: Mergers and acquisitions; Auctions; Structural estimation; Negotiations; Takeovers; Information frictions (search for similar items in EconPapers)
JEL-codes: D44 G34 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Entry and competition in takeover auctions (2018)
Working Paper: Entry and Competition in Takeover Auctions (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:132:y:2019:i:2:p:298-324

DOI: 10.1016/j.jfineco.2018.10.007

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