TAKEOVERS AND IMPLEMENTATION UNCERTAINTY: A REAL OPTIONS APPROACH

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http://hdl.handle.net/10138/135769
Title: TAKEOVERS AND IMPLEMENTATION UNCERTAINTY: A REAL OPTIONS APPROACH
Author: Alvarez, Luis H. R.; Stenbacka, Rune
Belongs to series: 5
ISBN: 951-555-852-2
Abstract: We design a compound real options model, which determines the timing of takeovers and characterizes the distribution of the associated surplus. We delineate a relationship between the imperfections in the market for corporate control and the takeover incentives. We character- ize a critical bargaining power below which the compound takeover option is never exercised. This critical threshold is a decreasing function of the expected primary takeover gain and the embedded divestment gain and an increasing function of the implementation uncertainty. With implementation uncertainty the relationship between volatility and takeover timing depends on the functional form of the pro¯t °ow.
URI: http://hdl.handle.net/10138/135769
Date: 2004-07-13
Subject (ysa): takeover incentives
market for corporate control
implementation uncertainty
real options


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