Abstract

The ability of a Board to defend itself from a takeover bid is reduced the greater the proportion of shareholders who sell-out early. Shareholders therefore face a coordination problem; and their actions generate a novel feedback loop between the volume of shareholder sales and takeover outcomes. We use global games to derive and analyse the unique threshold-equilibrium. We show that rules which strengthen Boards' discretion to make takeover judgments, or which weaken new shareholders' voting power, encourage shareholders to sell early; and that incentives to politically pressure Boards are greatest in jurisdictions with the greatest respect for shareholder rights.

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