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

Kawakami, Kei, A Model of Self-Selection in the Takeover Market (June 1, 2023). Available at SSRN: https://ssrn.com/abstract=3422620 or http://dx.doi.org/10.2139/ssrn.3422620

Kei Kawakami (Contact Author)

Aoyama Gakuin University ( email )

4-4-25 Shibuya, Shibuya-ku
Tokyo, 150-8366
Japan

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