Repetition, Reputation, and Raiding

J Chris Leach

The Review of Financial Studies, 1992, vol. 5, issue 4, 685-708

Abstract: I develop a multitarget takeover model with bid revisions, in which bidders desire a reputation for having low valuations. Such a reputation increases the likelihood that future targets will accept low premium bids. Bidders develop reputation by using low take-it-or-leave-it offers. Consequently, tender premiums bid revision rates, and success rates are lower for continuing bidders than for those considering only a single target. Success rates vary within a series, and reputation building is more likely with highly correlated target valuations. I provide an exploratory empirical analysis consistent with lower premiums from continuing bidders and discuss some resulting implications regarding "raiders," conglomerates, and resistance strategies. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 1992
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