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Security-voting structure and bidder screening

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  • At, Christian
  • Burkart, Mike
  • Lee, Samuel

Abstract

This paper demonstrates that non-voting shares can promote takeovers. When the bidder has private information, shareholders may refuse to tender because they suspect to sell at an ex post unfavourable price. The ensuing friction in the sale of cash flow rights can prevent an efficient change of control. Separating cash flow and voting rights alters the degree of cross-subsidization among bidder types. It can therefore be used as an instrument to promote takeover activity and to discriminate between efficient and inefficient bidders. The optimal fraction of non-voting shares decreases with managerial ability, implying an inverse relationship between firm value and non-voting shares.

Suggested Citation

  • At, Christian & Burkart, Mike & Lee, Samuel, 2011. "Security-voting structure and bidder screening," LSE Research Online Documents on Economics 69542, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:69542
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    Cited by:

    1. repec:ipg:wpaper:2014-604 is not listed on IDEAS
    2. Sergey Stepanov, 2012. "Takeovers under Asymmetric Information: Block Trades and Tender Offers in Equilibrium," Working Papers w0185, Center for Economic and Financial Research (CEFIR).
    3. Bo Becker & Jens Josephson, 2016. "Insolvency Resolution and the Missing High-Yield Bond Markets," The Review of Financial Studies, Society for Financial Studies, vol. 29(10), pages 2814-2849.
    4. Burkart, Mike & Lee, Samuel, 2010. "Signalling in tender offer games," LSE Research Online Documents on Economics 119085, London School of Economics and Political Science, LSE Library.
    5. At, Christian & Morand, Pierre-Henri, 2008. "Jump bidding in ascending auctions: The case of takeover contests," Economics Letters, Elsevier, vol. 99(3), pages 458-460, June.
    6. Christian At, 2017. "The Market for Corporate Control with Influential- and Dependent-Stakeholder Protection," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 173(3), pages 419-430, September.
    7. repec:ipg:wpaper:2014-531 is not listed on IDEAS
    8. Mike Burkart & Samuel Lee, 2008. "One Share - One Vote: the Theory," Review of Finance, European Finance Association, vol. 12(1), pages 1-49.
    9. Robert Marquez & Bilge Yılmaz, 2012. "Takeover Bidding and Shareholder Information," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 1(1), pages 1-27.
    10. Mike Burkart & Samuel Lee, 2015. "Signalling to Dispersed Shareholders and Corporate Control," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(3), pages 922-962.
    11. Levit, Doron, 2017. "Advising shareholders in takeovers," Journal of Financial Economics, Elsevier, vol. 126(3), pages 614-634.

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    More about this item

    Keywords

    Tender offers; One share – one vote; Asymmetric information;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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