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Unconditional and Conditional Takeover Offers: Experimental Evidence

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  • Kale, Jayant R
  • Noe, Thomas H

Abstract

This article compares the predictions of finite-shareholder models of conditional and unconditional takeover offers with the outcomes of laboratory experiments. In addition to differentiating between types of offers, the experimental designs span small and large firms as well as different levels of offer premiums. It is found that in unconditional offers to large groups of subjects (28-40), the symmetric Nash equilibrium predicts observed tendering frequencies quite accurately. For other experimental designs, the results are mixed. The analysis of shareholder tendering strategies from the experiment yields insight into (i) the effects of takeover offer designs, (ii) the appropriateness of finite-shareholder models for research, and (iii) the costs of free riding when shareholders are nonatomistic. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Suggested Citation

  • Kale, Jayant R & Noe, Thomas H, 1997. "Unconditional and Conditional Takeover Offers: Experimental Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 735-766.
    • Handle: RePEc:oup:rfinst:v:10:y:1997:i:3:p:735-66
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    Cited by:

    1. 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.
    2. Dai, Yun & Gryglewicz, Sebastian & Smit, Han T.J. & De Maeseneire, Wouter, 2013. "Similar bidders in takeover contests," Games and Economic Behavior, Elsevier, vol. 82(C), pages 544-561.
    3. Edward Cartwright & Anna Stepanova, 2017. "Efficiency in a forced contribution threshold public good game," International Journal of Game Theory, Springer;Game Theory Society, vol. 46(4), pages 1163-1191, November.
    4. 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.
    5. Armando Gomes & Wilfredo Maldonado, 2020. "Mergers and acquisitions with conditional and unconditional offers," International Journal of Game Theory, Springer;Game Theory Society, vol. 49(3), pages 773-800, September.
    6. Pablo Hernández-Lagos & Paul Povel & Giorgo Sertsios, 2017. "An Experimental Analysis of Risk-Shifting Behavior," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 6(1), pages 68-101.
    7. 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.
    8. Huber, Christoph & Kirchler, Michael, 2023. "Experiments in finance: A survey of historical trends," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    9. Ryan Oprea, 2008. "Free Cash Flow and Takeover Threats: An Experimental Study," Southern Economic Journal, John Wiley & Sons, vol. 75(2), pages 351-366, August.

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