A Partial Theory of Takeover Bids

  • Author(s): D. J. ASHTON, D. R. ATKINS
  • Published: Apr 30, 2012
  • Pages: 167-183
  • DOI: 10.1111/j.1540-6261.1984.tb03866.x


There is a natural separation between production decisions affecting the firm as a whole and individual decisions by each shareholder about his portfolio of securities. The end result of these two types of decisions is normally referred to as a productive exchange equilibrium. At such an equilibrium, no individual wants to adjust his portfolio and no firm can muster majority support for a change in its production plans. This paper presents a partial theory of takeover bids in that it examines the role of a takeover bid as a mechanism by which a simultaneous change in shareholdings and production plans can be achieved. This enables a new production exchange equilibrium to be reached which is preferred by a majority of the shareholders but which is inaccessible without a contingent contract in the form of a takeover bid.

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