Working Paper: CEPR ID: DP4051
Authors: Gilles Chemla
Abstract: 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.
Keywords: buyer; disclosure; information; price; takeovers; value
JEL Codes: D82; G34; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Takeover threat (G34) | Buyer's willingness to disclose information (D16) |
| Takeover (G34) | Firm's ability to extract rents from buyers (D43) |
| Buyer's valuation increases (G19) | Buyer's willingness to disclose information increases (D83) |
| Takeover perceived as wealth transferring (G34) | Buyer's willingness to disclose information (D16) |
| Bargaining power shifts post-takeover (G34) | Dynamics of pricing strategies (D49) |
| Takeover threat (G34) | Surplus from trade increases (F19) |