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Share Repurchase as a Takeover Defense

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  • Sinha, Sidharth

Abstract

This paper presents a model in which managers of firms that are takeover targets use debt-financed share repurchase to bond themselves to reduce perquisite consumption and increase investment in the firm. The resulting value increase makes the firm a less attractive target. The optimal level of share repurchase is the result of a trade-off between the benefit of a reduced probability of takeover and the cost of an increased probability of bankruptcy. Unlike earlier explanations of defensive repurchases, which are based on information signalling or control of voting rights, this explanation is independent of the extent of shareholding by target management.

Suggested Citation

  • Sinha, Sidharth, 1991. "Share Repurchase as a Takeover Defense," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(2), pages 233-244, June.
    • Handle: RePEc:cup:jfinqa:v:26:y:1991:i:02:p:233-244_00
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    Cited by:

    1. Cristián Pinto, 2015. "The Role of Media in Share Repurchases," Serie Working Papers 22, Universidad del Desarrollo, School of Business and Economics.
    2. George P. Tsetsekos, 1993. "Valuation Effects Of Open Market Stock Repurchases For Financially Weak Firms," Review of Financial Economics, John Wiley & Sons, vol. 2(2), pages 29-42, March.
    3. Miguel Ángel Ropero, 2000. "Adquisición de acciones propias: factores explicativos para el caso español," Investigaciones Economicas, Fundación SEPI, vol. 24(2), pages 329-355, May.
    4. Karyn L. Neuhauser & Wallace N. Davidson & John L. Glascock, 2011. "An analysis of failed takeover attempts and merger cancellations," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 7(4), pages 347-376, September.
    5. Hanna Petrivna Olasiuk & Siddhartha Bhasker & Sudip Patra, 2024. "Cash Dividends and Share Repurchases in Ukrainian Pharmaceutical Companies," Global Business Review, International Management Institute, vol. 25(2_suppl), pages 7-22, April.

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