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RFS Advance Access originally published online on January 19, 2006
Review of Financial Studies 2006 19(2):561-603; doi:10.1093/rfs/hhj011
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© The Author 2006. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org.

If at First You Don’t Succeed: The Effect of the Option to Resolicit on Corporate Takeovers

Ann B. Gillette
Michael J. Coles College of Business, Kennesaw State University and Federal Reserve Bank of Atlanta

Thomas H. Noe
A.B. Freeman School of Business, Tulane University

Address correspondence to Ann B. Gillette, Michael J. Coles College of Business, Kennesaw State University, 1000 Chastain Road, Kennesaw, GA 30144, or email: agillet1{at}kennesaw.edu.

This article models, and experimentally simulates, the free-rider problem in a takeover when the raider has the option to "resolicit," that is, to make a new offer after an offer has been rejected. In theory, the option to resolicit, by lowering offer credibility, increases the dissipative losses associated with free riding. The outcomes of our experiment support this prediction and produce losses from free riding even higher than theoretically predicted. These dissipation losses reduce raider gains to less than 3% of synergy value of the acquisition


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