At, Christian, Burkart, Mike 
ORCID: 0000-0002-0954-4499 and Lee, Samuel
(2007)
Security-voting structure and bidder screening.
Financial Markets Group Discussion Papers (575).
Financial Markets Group, The London School of Economics and Political Science, London, UK.
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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.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://fmg.ac.uk |
| Additional Information: | © 2007 The Authors |
| Divisions: | Financial Markets Group |
| Subjects: | H Social Sciences > HB Economic Theory |
| JEL classification: | G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior |
| Date Deposited: | 22 Jul 2009 08:41 |
| Last Modified: | 11 Dec 2024 18:49 |
| URI: | http://eprints.lse.ac.uk/id/eprint/24473 |
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