Effects of competition on bidder returns

Abstract

This study offers several new perspectives on the effects of competition in takeover contests on bidder returns. Using a more extensive database than existing studies and employing several different measures of success in takeovers, we find that success in competitive acquisitions decreases shareholder wealth relative to both failure and success in observed single-bidder takeovers. Further, we consider and test hypotheses regarding bidder returns, including hypotheses suggested by the preemptive bidding theory. In general, our results neither support the preemptive bidding theory nor the hypotheses linking the method of payment and the observed level of competition. We also test hypotheses relating to returns across the multiple events in a multiple-bid contest that competition among bidders generates. The results of these tests underscore the importance of timing as well as success of a bid to the bidder's subsequent performance.