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The Direct Entry versus Takeover Decision and Stock Price Performance around Takeovers

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Author Info
McCardle, Kevin F
Viswanathan, S

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Abstract

The authors develop a Cournot oligopoly model of an industry with a potential entrant. Entry into the industry can be effected either directly or through acquisition of an incumbent. They establish the existence of an equilibrium in which the types of potential entrant differentiate themselves by the entry strategy chosen. A takeover offer generated by this behavior reveals information to the capital markets, which respond in a manner consistent with the empirical evidence by driving up the value of the targeted incumbent and driving down the value of the bidding entrant. Copyright 1994 by University of Chicago Press.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 67 (1994)
Issue (Month): 1 (January)
Pages: 1-43
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Handle: RePEc:ucp:jnlbus:v:67:y:1994:i:1:p:1-43

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  1. Matthew Rhodes-Kropf & David T. Robinson, 2004. "The Market for Mergers and the Boundaries of the Firm," Working Papers 05-18, Utrecht School of Economics. [Downloadable!]
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  2. Sara B. Moeller & Frederik P. Schlingemann & Rene M. Stulz, 2004. "Wealth Destruction on a Massive Scale? A Study of Acquiring-Firm Returns in the Recent Merger Wave," NBER Working Papers 10200, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Jeremy I. Bulow & Paul D. Klemperer, 2007. "When are Auctions Best?," NBER Working Papers 13268, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Sara B. Moeller & Frederik P. Schlingemann & Rene M. Stulz, 2004. "Do Acquirers With More Uncertain Growth Prospects Gain Less From Acquisitions?," NBER Working Papers 10773, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Eric Van Tassel & Sharmila Vishwasrao, 2006. "Asymmetric Information and the Mode of Entry In Foreign Credit Markets," Working Papers 06002, Department of Economics, College of Business, Florida Atlantic University. [Downloadable!]
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  6. Margsiri, Worawat & Melloy, Antonio S. & Ruckesz, Martin E., 2008. "A Dynamic Analysis of Growth via Acquisition," CEI Working Paper Series 2008-8, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  7. Sara B. Moeller & Frederik P. Schlingemann & Rene M. Schultz, 2004. "Do Acquirers With More Uncertain Growth Prospects Gain Less From Acquisitions?," Working Papers 05-17, Utrecht School of Economics. [Downloadable!]
  8. Boyan Jovanovic & Serguey Braguinsky, 2002. "Bidder Discounts and Target Premia in Takeovers," NBER Working Papers 9009, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Gary Gorton & Matthias Kahl & Richard Rosen, 2005. "Eat or Be Eaten: A Theory of Mergers and Merger Waves," NBER Working Papers 11364, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Moeller, Sara B. & Schilngemann, Frederik P. & Stulz, Rene M., 2004. "Do Acquirers with More Uncertain Growth Prospects Gain Less from Acquisitions?," Working Paper Series 2004-19, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
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