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RFS Advance Access published online on January 19, 2006
Review of Financial Studies, 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

Article

If at first you don’t succeed: The effect of the option to resolicit on corporate takeovers

Ann B. Gillette 1 * and Thomas H. Noe 2
1 Michael J. Coles College of Business, Kennesaw State University. 1000 Chastain Road, Kennesaw, GA 30144; Research Department Federal Reserve Bank of Atlanta 1000 Peachtree Street N.E Atlanta, Georgia 30309-4470
2 A.B. Freeman School of Business, Tulane University. New Orleans, LA 70118-5669

* To whom correspondence should be addressed.
Ann B. Gillette, E-mail: agillet1{at}kennesaw.edu


  Abstract

This paper 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 three percent of synergy value of the acquisition.


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