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The Social Value of Debt in the Market for Corporate Control

Author

Listed:
  • Burkart, Mike
  • Lee, Samuel
  • Petri, Henrik

Abstract

How should bidders fi nance tender offers when the objective of the takeover is to improve incentives? In such a setting, debt fi nance has bene fits even when bidders have deep pockets: It ampli es incentive gains, imposes Pareto sharing on bidders and free-riding target shareholders, and makes bidding competition more efficient. High leverage, independent of fi nancing needs, can be privately and socially optimal. Although takeover debt dilutes target shareholders, they may benefi t most from it, especially when bidding is competitive.

Suggested Citation

  • Burkart, Mike & Lee, Samuel & Petri, Henrik, 2020. "The Social Value of Debt in the Market for Corporate Control," CEPR Discussion Papers 15249, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15249
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    References listed on IDEAS

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    More about this item

    Keywords

    Tender offers; Free-riding; Debt financing; Debt overhang; Equity dilution;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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