Tender Offers, Transactions Costs and the Theory of the Firm

Robert H. Smiley

57 citations0/0 files storedThe Review of Economics and Statistics

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Corporate Finance and Governance Financial Markets and Investment Strategies Merger and Competition Analysis

Abstract

W HILE economists generally recognize that takeover bids limit managers' opportunity sets, empirical evidence on the efficacy of this constraint has heretofore been lacking. This paper develops a state preference model of a tender offer and the risk adjusted transactions costs of the offer are shown to be the constraining mechanism. We then show that, under certain conditions, observation of rates of return and measures of risk can lead to the estimation of the size of transactions costs. These costs are estimated using a sample of 95 tender offers that occurred in the United States between 1956 and 1970. The objective of each of the offers was a transfer of control of the target firm.

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References

1970EFFICIENT CAPITAL MARKETS: A REVIEW OF THEORY AND EMPIRICAL WORK*1972Capital Market Equilibrium with Restricted Borrowing 2003The Adjustment of Stock Prices to New Information 1972The capital asset pricing model: Some empirical tests 1965Mergers and the Market for Corporate Control 1969Risk, The Pricing of Capital Assets, and The Evaluation of Investment Portfolios 1973Studies in the Theory of Capital Markets.1966Market and Industry Factors in Stock Price Behavior

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2016The Corporation, Competition, and the Invisible Hand 1977The effects of conglomerate mergers 1986Mergers and market share 1984Australian Takeovers: Capital Market Efficiency and Shareholder Risk and Return 2007How Does the Market for Corporate Control Function for Property Companies?1987Takeovers and Stockholders: Winners and Losers

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