A Theory of Takeovers and Disinvestment / Bart Lambrecht, Stewart C. Myers.

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Lambrecht, Bart

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w11082.Publication details: Cambridge, Mass. National Bureau of Economic Research 2005.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We present a real-options model of takeovers and disinvestment in declining industries. As product demand declines, a first-best closure level is reached, where overall value is maximized by shutting down the .rm and releasing its capital to investors. Absent takeovers, managers of unlevered firms always abandon the firm's business too late. We model the managers' payout policy absent takeovers and consider the effects of golden parachutes and leverage on managers' shut-down decisions. We analyze the effects of takeovers of under-leveraged firms. Takeovers by raiders enforce first-best closure. Hostile takeovers by other firms occur either at the first-best closure point or too early. We also consider management buyouts and mergers of equals and show that in both cases closure happens inefficiently late.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w11082 (Browse shelf(Opens below))	Not For Loan

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January 2005.

We present a real-options model of takeovers and disinvestment in declining industries. As product demand declines, a first-best closure level is reached, where overall value is maximized by shutting down the .rm and releasing its capital to investors. Absent takeovers, managers of unlevered firms always abandon the firm's business too late. We model the managers' payout policy absent takeovers and consider the effects of golden parachutes and leverage on managers' shut-down decisions. We analyze the effects of takeovers of under-leveraged firms. Takeovers by raiders enforce first-best closure. Hostile takeovers by other firms occur either at the first-best closure point or too early. We also consider management buyouts and mergers of equals and show that in both cases closure happens inefficiently late.