Asymmetric Information and the Medium of Exchange in Takeovers : Theory and Tests

  title={Asymmetric Information and the Medium of Exchange in Takeovers : Theory and Tests},
  author={B. Espen Eckbo and Ronald M. Giammarino and Robert L. Heinkel},
In a model of takeovers under asymmetric information, we identify a separating equilibrium in which the value of the bidder firm is revealed by the mix of cash and securities used as payment for the target. The model predicts that the revealed bidder value is monotonically increasing and convex in the fraction of the total offer that consists of cash. We examine the model restrictions using data from Canada, where mixed offers are both relatively frequent and free of the confounding tax-related… CONTINUE READING
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