Assessing Competition in the Market for Corporate Acquisitions
Assessing Competition in the Market for Corporate Acquisitions
Richard S Ruback
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If the alternative objective of managerial welfare maximization is assumed, the potential gains for unsuccessful bidders should be less than the gains for successful bidders. The empirical results presented in section 5 are inconsistent with rivalry under stockholder wealth maximization, but are consistent with rivalry under managerial welfare maximization. - 5 - 2. Defining the Concepts 2. 1 Rivalry under stockholder wealth maximization The first condition of rivalry when the manager's objecti...ve is assumed to be stockholder wealth maximization is that the owners of target firms are only concerned about the offer price; among competing bids for the same target firm, the highest bid is selected. Denoting P. As the price per share offered by firm i, P > P. For i ?^ s and i£N (1) s — 1 where the subscript "s" denotes the successful firm and N is the set of po- tential bidders. The second component of rivalry incorporates the assumption that the bid- ing firm's management is wealth maximizing; negative net present value offers are not made.
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