Initial Shareholdings and Overbidding in Takeover Contests

  • Author(s): MIKE BURKART
  • Published: Apr 30, 2012
  • Pages: 1491-1515
  • DOI: 10.1111/j.1540-6261.1995.tb05186.x

ABSTRACT

Within the context of takeovers, this paper shows that in private‐value auctions the optimal individually rational strategy for a bidder with partial ownership of the item is to overbid, i.e., to bid more than his valuation. This strategy, however, can lead to i) an inefficient outcome, and ii) the winning bidder making a net loss. Further, the overbidding result implies that the presence of a large shareholder increases the bid premium in single‐bidder takeovers at the expense of reducing the probability of the takeover actually occurring.

Jump to menu

Main Navigation

Search the Site / Journal

Search Keywords

Search Tips

Members' Login

Credentials

Members' Options

Site Footer

View Mobile Version