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Strategic Information Transmission and Efficient Corporate Control

Author

Listed:
  • Paul Voß
  • Marius Kulms

Abstract

We present a model of corporate takeovers in which both, a potential acquirer and incumbent management have private information about the firm value under their respective leadership. Despite the two-sided asymmetric information and endogenously misaligned interests of shareholders and incumbent management, first-best control allocation is feasible if incumbent management can strategically communicate with shareholders. However, shareholders prefer access to more information than revealed in equilibrium. This demand for information leads to inefficiently few takeovers. The model provides implications for the regulation of disclosure requirements and fairness opinions, as well as empirical predictions that link executive compensation to takeover outcomes.

Suggested Citation

  • Paul Voß & Marius Kulms, 2020. "Strategic Information Transmission and Efficient Corporate Control," CRC TR 224 Discussion Paper Series crctr224_2020_180, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2020_180
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp180
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    More about this item

    Keywords

    Communication; cheap talk; takeover; tender o er; signaling;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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