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Do breakup fees lead to efficient takeover?

Author

Listed:
  • Che, Yeon-Koo
  • Kim, Jinwoo
  • Lewis, Tracy R.

Abstract

We examine the use of breakup fees as a device for target firms to recruit white knights in response to a hostile takeover bid. When bidders have interdependent valuations of the target, the possible use of a breakup fee to subsidize entry of a subsequent bidder overdisciplines the initial bidder's preemption and results in excessive entry by a second bidder.

Suggested Citation

  • Che, Yeon-Koo & Kim, Jinwoo & Lewis, Tracy R., 2010. "Do breakup fees lead to efficient takeover?," Economics Letters, Elsevier, vol. 108(1), pages 52-54, July.
    • Handle: RePEc:eee:ecolet:v:108:y:2010:i:1:p:52-54
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