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Takeovers Of Diffusely Held Firms: A Nonstandard Approach

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  • Thomas H. Noe

Abstract

A common theme in the literature on corporate control is that, when share ownership is diffuse, the free‐rider problem prevents raiders from making acquisitions at tender prices below the postacquisition share price. In this paper, we address this question by formulating a nonstandard model of takeovers of diffusely held firms. It is demonstrated that, even when individual shareholdings are infinitesimal relative to firm size, takeovers succeed with positive probability and equilibria exist in which the raider earns substantial per share profits. Further, the Nash equilibria of the game are characterized with regard to raider profit, the aggregate fraction of shares tendered, and the relation between raider profit and the degree of randomization exhibited by shareholder tendering strategies.

Suggested Citation

  • Thomas H. Noe, 1995. "Takeovers Of Diffusely Held Firms: A Nonstandard Approach," Mathematical Finance, Wiley Blackwell, vol. 5(3), pages 247-277, July.
    • Handle: RePEc:bla:mathfi:v:5:y:1995:i:3:p:247-277
    DOI: 10.1111/j.1467-9965.1995.tb00067.x
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    Cited by:

    1. Noe, Thomas H. & Pi, Lynn, 2000. "Learning dynamics, genetic algorithms, and corporate takeovers," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 189-217, February.
    2. Ann B. Gillette & Thomas H. Noe, 2006. "If at First You Don't Succeed: The Effect of the Option to Resolicit on Corporate Takeovers," The Review of Financial Studies, Society for Financial Studies, vol. 19(2), pages 561-603.
    3. Bilge Yilmaz, "undated". "A Theory of Takeover Bidding," Rodney L. White Center for Financial Research Working Papers 03-00, Wharton School Rodney L. White Center for Financial Research.
    4. Bilge Yilmaz, "undated". "A Theory of Takeover Bidding," Rodney L. White Center for Financial Research Working Papers 3-00, Wharton School Rodney L. White Center for Financial Research.
    5. Ann B. Gillette & Thomas H. Noe, 2000. "If at first you don't succeed: an experimental investigation of the impact of repetition options on corporate takeovers," FRB Atlanta Working Paper 2000-9, Federal Reserve Bank of Atlanta.

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