DP4051 Takeovers and the Dynamics of Information Flows

Author(s): Gilles Chemla
Publication Date: September 2003
Keyword(s): buyer, disclosure, information, price, takeovers, value
JEL(s): D82, G34, L14
Programme Areas: Financial Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4051

This Paper analyses the effect of a possible takeover on information flows and on the terms of trade in business relationships. We consider a long-term relationship between a firm and a privately-informed stakeholder, a buyer for example. In our model, takeovers both increase the surplus from trade and enable the firm to extract a potentially higher share of the surplus from the buyer. The possibility of a takeover that leaves the buyer with a higher (lower) rent than the incumbent manager increases (decreases) the buyer's willingness to reveal their valuation. We suggest a number of testable predictions on the performance of takeover targets and trade credit.