A Model of Self-Selection in the Takeover Market
38 Pages Posted: 19 Jul 2019 Last revised: 5 Sep 2023
Date Written: June 1, 2023
Abstract
We develop a self-selection model of takeovers in which tradeable "projects" and non-tradeable "organizations" are complements. Without distortions, a positive cross-partial condition generates the monotonic self-selection. With distortions, we derive a stronger complementarity condition sufficient for the monotonic self-selection. The monotonicity implies that signs of announcement returns identify a type of pre-announcement public information about firms. We discuss stylized facts about announcement returns through the lens of our model. A parameterized model shows that the relative bidder size increases in the importance of organizations in production, and also in the level of distortions if organizations are sufficiently important in production.
Keywords: Announcement Return, Takeovers, Volume.
JEL Classification: L1, G3, D8
Suggested Citation: Suggested Citation