Working Paper

If at first you don't succeed: an experimental investigation of the impact of repetition options on corporate takeovers

Abstract: This paper models, and experimentally simulates, the free-rider problem in a takeover when the raider has the option to ?resolicit,? that is, to make a new offer after an offer has been rejected. In theory, the option to resolicit, by lowering offer credibility, increases the dissipative losses associated with free riding. In practice, the outcomes of our experiment, while quite closely tracking theory in the effective absence of an option to resolicit, differed dramatically from theory when a significant probability of resolicitation was introduced: The option to resolicit reduced the costs of free riding fairly substantially. Both the raider offers and the shareholder tendering responses generally exceeded equilibrium predictions.

Keywords: Corporations - Finance; Game theory;

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Bibliographic Information

Provider: Federal Reserve Bank of Atlanta

Part of Series: FRB Atlanta Working Paper

Publication Date: 2000

Number: 2000-9