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Security-Voting Structure and Bidder Screening

Christian At, Mike Burkart () and Samuel Lee

No 6241, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper analyzes how non-voting shares affect the takeover outcome in a single-bidder model with asymmetric information and private benefit extraction. In equilibrium, the target firm's security-voting structure influences the bidder's participation constraint and in response the shareholders' conditional expectations about the post-takeover share value. Therefore, the structure can be chosen to discriminate among bidder types. Typically, the socially optimal structure deviates from one share - one vote to promote all and only value-increasing bids. As target shareholders ignore takeover costs, they prefer more takeovers and hence choose a smaller fraction of voting shares than is socially optimal. In either case, the optimal fraction of voting shares decreases with the quality of shareholder protection and increases with the incumbent manager's ability. Finally, shareholder returns are higher when a given takeover probability is implemented by (more) non-voting shares rather than by (larger) private benefits.

Keywords: dual-class share structure; free-rider behaviour; tender offer (search for similar items in EconPapers)
JEL-codes: G34 (search for similar items in EconPapers)
Date: 2007-03
New Economics Papers: this item is included in nep-cdm
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Citations: View citations in EconPapers (3) Track citations by RSS feed

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Related works:
Journal Article: Security-voting structure and bidder screening (2011) Downloads
Working Paper: Security-voting structure and bidder screening (2011) Downloads
Working Paper: Security Voting Structure and Bidder Screening (2011)
Working Paper: Security-voting structure and bidder screening (2007) Downloads
Working Paper: Security-Voting Structure and Bidder Screening (2007) Downloads
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