Abstract

Previous analysis of the free rider problem in takeover bids has concluded that complex takeover strategies, nonprice taking behavior, taxes, or exogenous exclusion of minority shareholders are necessary for the bidder to profit from a takeover bid. In contrast, in this study, costs of disclosure and the fungible nature of the bidder's information mitigates the detrimental consequences of the free rider problem. The absence of the free rider problem in takeover bids has important implications for optimal bidding strategies, the interpretation of mechanisms posed as solutions to the free rider problem, and the analysis of regulation of takeover activity.

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