Takeovers

Question 1

Grossman and Hart 1980

Answer 1

• Gist: market for corporate control limited by passive shareholders free-riding
• commonly thought that a widely held corporation that is not being run in the interest of its shareholders will be vulnerable to a takeover bid.
• this is false, since shareholders can free ride on the raider’s improvement of the corporation, thereby seriously limiting the raider’s profit.

Question 2

Sheifer and Vishny 1986

Answer 2

• Gist: Free-rider problem similar to Grossman and Hart (1993). Costly monitoring of managers that benefits ALL shareholders limits this activity by active shareholders.
• explore a model in which the presence of a large minority shareholder provides a partial solution to this free-rider problem.
• model sheds light on the following questions: Under what circumstances will we observe a tender offer as opposed to a proxy fight or an internal management shake-up?
• How strong are the forces pushing toward increasing concentration of ownership of a diffusely held firm?
• Why do corporate and personal investors commonly hold stock in the same firm, despite their disparate tax preferences?

Question 3

Hirshleifer 1995

Answer 3

• survey on the free-rider problem.
• Models depend on tendering strategies coordinated so that each shareholder has a substantial probability of being pivotal.
• degree of coordination may not be possible when noise is added in the form of a fraction of shareholders influenced by costs and benefits not observed by others

Question 4

Gantchev 2012

Answer 4

• models [hedge fund] activism as a sequential decision process
• consisting of demand negotiations, board representation, and proxy contest
• campaign ending in a proxy fight has avg costs of $10.71 million.
• estimated monitoring costs reduce activist returns by more than two-thirds.
• mean net activist return is close to zero but the top quartile of activists earns higher returns on their activist holdings than on their non-activist investments.