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Initial shareholdings and overbidding in takeover contests

Burkart, Mike (1995) Initial shareholdings and overbidding in takeover contests. Journal of Finance, 50 (5). pp. 1491-1515. ISSN 0022-1082

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Identification Number: 10.1111/j.1540-6261.1995.tb05186.x


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.

Item Type: Article
Official URL:
Additional Information: © 1995 the American Finance Association
Divisions: Finance
Subjects: H Social Sciences > HG Finance
Date Deposited: 22 Feb 2017 10:49
Last Modified: 17 Feb 2021 11:09

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