Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86241
Authors: 
Smit, Han T.J.
van den Berg, Ward A.
Maeseneire, Wouter De
Year of Publication: 
2004
Series/Report no.: 
Tinbergen Institute Discussion Paper 04-084/2
Abstract: 
This paper uses a unified treatment of real options and game theory to examine value appropriation in takeovers within a competitive environment of imperfect information. The integrated model considers a potential target as a shared real option on a bundle of resources. Competing potential buyers may sequentially perform due diligence and incur costs (option premium) to become informed about their firm-specific target value (underlying value) before making a bid (exercise price). The first player’s bid provides a signal on its own and rivals’ target value, thereby affecting potential bidders’ option value. The level of information costs and the option value, affected by heterogeneity between bidders (correlation), their expected target value, and uncertainty, determine value appropriation in acquisitions.
Subjects: 
Acquisitions
Competitive bidding
Real options
Resources
Option game
JEL: 
D81
D82
G30
G34
Document Type: 
Working Paper

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