Security-voting structure and bidder screening

Christian At, Mike Burkart and Samuel Lee

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

JEL-codes: D21 G30 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2007-02-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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http://eprints.lse.ac.uk/24473/ Open access version. (application/pdf)

Related works:
Journal Article: Security-voting structure and bidder screening (2011)
Working Paper: Security-voting structure and bidder screening (2011)
Working Paper: Security Voting Structure and Bidder Screening (2011)
Working Paper: Security-Voting Structure and Bidder Screening (2007)
Working Paper: Security-Voting Structure and Bidder Screening (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:24473

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