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.
File(s): File format is application/pdf https://www.atlantafed.org/-/media/Documents/research/publications/wp/2000/wp0009.pdf
Provider: Federal Reserve Bank of Atlanta
Part of Series: FRB Atlanta Working Paper
Publication Date: 2000