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- Publisher Website: 10.2308/TAR-2020-0114
- WOS: WOS:000884787500014
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Article: Strategic Nondisclosure in Takeovers
Title | Strategic Nondisclosure in Takeovers |
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Authors | |
Issue Date | 2021 |
Citation | The Accounting Review, 2021, Forthcoming How to Cite? |
Abstract | We examine takeover auctions when an informed bidder has better information about the target value than a rival and target shareholders. The informed bidder’s information is either hard or soft, and only hard information can be credibly disclosed. We show that withholding information creates a winner’s curse, thereby serving as a preemption device that deters the rival’s participation. In turn, an endogenous dis- closure cost arises that induces the informed bidder to optimally withhold favorable information to minimize the acquisition price—breaking down the standard unraveling result, even if his information is always hard. Perhaps surprisingly, stronger competition from the uninformed bidder can reduce the target shareholders’ payoff and increase the payoff of the informed bidder while unambiguously improving social welfare. Moreover, “hardened” information can reduce the gains to trade, decreasing welfare but increasing shareholders’ payoff. Our results provide a cautionary note to promoting more competition and more disclosure. |
Persistent Identifier | http://hdl.handle.net/10722/304172 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Li, J | - |
dc.contributor.author | Liu, T | - |
dc.contributor.author | Zhao, R | - |
dc.date.accessioned | 2021-09-23T08:56:13Z | - |
dc.date.available | 2021-09-23T08:56:13Z | - |
dc.date.issued | 2021 | - |
dc.identifier.citation | The Accounting Review, 2021, Forthcoming | - |
dc.identifier.uri | http://hdl.handle.net/10722/304172 | - |
dc.description.abstract | We examine takeover auctions when an informed bidder has better information about the target value than a rival and target shareholders. The informed bidder’s information is either hard or soft, and only hard information can be credibly disclosed. We show that withholding information creates a winner’s curse, thereby serving as a preemption device that deters the rival’s participation. In turn, an endogenous dis- closure cost arises that induces the informed bidder to optimally withhold favorable information to minimize the acquisition price—breaking down the standard unraveling result, even if his information is always hard. Perhaps surprisingly, stronger competition from the uninformed bidder can reduce the target shareholders’ payoff and increase the payoff of the informed bidder while unambiguously improving social welfare. Moreover, “hardened” information can reduce the gains to trade, decreasing welfare but increasing shareholders’ payoff. Our results provide a cautionary note to promoting more competition and more disclosure. | - |
dc.language | eng | - |
dc.relation.ispartof | The Accounting Review | - |
dc.title | Strategic Nondisclosure in Takeovers | - |
dc.type | Article | - |
dc.identifier.email | Li, J: acjli@hku.hk | - |
dc.identifier.email | Liu, T: tjliu@hku.hk | - |
dc.identifier.authority | Li, J=rp02170 | - |
dc.identifier.authority | Liu, T=rp02221 | - |
dc.identifier.doi | 10.2308/TAR-2020-0114 | - |
dc.identifier.hkuros | 325000 | - |
dc.identifier.volume | Forthcoming | - |
dc.identifier.isi | WOS:000884787500014 | - |