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RFS Advance Access originally published online on June 22, 2006
Review of Financial Studies 2007 20(2):461-489; doi:10.1093/rfs/hhl009
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Right arrow D44 - Auctions
Right arrow G14 - Information and Market Efficiency; Event Studies
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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.

Do Termination Provisions Truncate the Takeover Bidding Process?

Audra L. Boone
University of Kansas

J. Harold Mulherin
University of Georgia

Address correspondence to Audra L. Boone, University of Kansas, School of Business, 1300 Sunnyside Avenue, Lawrence, KS 66045, or e-mail: alboone{at}ku.edu.


  Abstract

We provide new evidence on termination provisions and the takeover bidding process. Our central contribution is a novel database from Securities and Exchange Commission (SEC) documents that accurately measures the incidence of termination provisions and the depth of competition in takeover deals. We show that biased data in prior research produced incorrect conclusions on the relation between termination provisions and judicial decisions, bidder toeholds, and deal size. Our comprehensive data also show that termination provisions are positively related to takeover competition. Our evidence is consistent with the information/commitment hypothesis in which termination provisions do not truncate bidding but instead culminate the takeover process. (JEL G34; K22; D44).


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