Title: Strategic Information Transmission and Efficient Corporate Control
Abstract: We present a model of corporate takeovers in which both, a potential acquirer and incumbent management have private information about the firm value under their respective leadership. Despite the two-sided asymmetric information and endogenously misaligned interests of shareholders and incumbent management, first-best control allocation is feasible if incumbent management can strategically communicate with shareholders. However, shareholders prefer access to more information than revealed in equilibrium. This demand for information leads to inefficiently few takeovers. The model provides implications for the regulation of disclosure requirements and fairness opinions, as well as empirical predictions that link executive compensation to takeover outcomes.
Publication Year: 2020
Publication Date: 2020-01-01
Language: en
Type: preprint
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