Bidding

About: Bidding is a(n) research topic. Over the lifetime, 15371 publication(s) have been published within this topic receiving 294233 citation(s). The topic is also known as: competitive bidding.

Auctions and Bidding

Abstract: ONE PARTY TO AN EXCHANGE often knows something relevant to the transaction that the other party does not know. Such asymmetries of information are pervasive in economic activity: for example, in the relationship between employer and employee when the employee's effort cannot be monitored perfectly; between the stockholders and the manager of a firm; between insurer and insured; between a regulated firm and the regulatory agency; between the supplier and the consumers of a public good; between a socialist firm and the central planner; or (as is the subject of this paper) between buyer and seller when the value of the item is uncertain. Forty years ago, F. A. Hayek criticized theories that purport to describe the price system but start from the assumption that individuals have symmetric information: The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate "given" resources-if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality. (Hayek 1945, p. 519)

Do Managerial Objectives Drive Bad Acquisitions

Abstract: This paper documents for a sample of 327 US acquisitions between 1975 and 1987 three forces that systematically reduce the announcement day return of bidding firms. The returns to bidding shareholders are lower when their firm diversifies, when it buys a rapidly growing target , and when the performance of its managers has been poor before the acquisition. These results are consistent with the proposition that managerial rather than shareholders' objectives drive bad acquisitions.

Do outside directors monitor managers

Abstract: Examining 128 tender offer bids made from 1980 through 1987, we categorize outside directors as either independent of or having some affiliation with managers, and find that bidding firms on which independent outside directors hold at least 50% of the seats have significantly higher announcement-date abnormal returns than other bidders. However, the relationship between bidding firms' abnormal stock returns and the proportion of board seats held by independent outside directors is nonlinear, suggesting it is possible to have too many independent outside directors. All results are lost if the traditional inside-outside board classification method is used.

Do Managerial Objectives Drive Bad Acquisitions

Abstract: In a sample of 326 US acquisitions between 1975 and 1987, three types of acquisitions have systematically lower and predominantly negative announcement period returns to bidding firms. The returns to bidding shareholders are lower when their firm diversifies, when it buys a rapidly growing target, and when its managers performed poorly before the acquisition. These results suggest that managerial objectives may drive acquisitions that reduce bidding firms' values. THERE IS NOW CONSIDERABLE evidence that making acquisitions is a mixed blessing for shareholders of acquiring companies. Average returns to bidding shareholders from making acquisitions are at best slightly positive, and significantly negative in some studies (Bradley, Desai and Kim 1988, Roll 1986). Some have suggested that negative bidder returns are purely a consequence of stock financing of acquisitions that leads to a release of adverse information about acquiring firms (Asquith, Bruner, and Mullins 1987). In this case, negative bidder returns are not evidence of a bad investment. An alternative interpretation of poor bidder performance is that bidding firms overpay for the targets they acquire. In this paper, we present evidence that some types of bidders systematically overpay. There are at least two reasons why bidding firms' managers might overpay in acquisitions, thereby truly reducing the wealth of their shareholders as opposed to just revealing bad news about their firm. According to Roll (1986), managers of bidding firms are infected by hubris, and so overpay for targets because they overestimate their own ability to run them. Another view of overpayment is that managers of bidding firms pursue personal objectives other than maximization of shareholder value. To the extent that acquisitions serve these objectives, managers of bidding firms are willing to pay more for targets than they are worth to bidding firms' shareholders. Our view is that when a firm makes an acquisition or any other investment, its manager considers both his personal benefits from the investment and the consequences for the market value of the firm. Some investments are particularly attractive from the former perspective: they contribute to long term growth of the firm, enable the manager to diversify the risk on his human capital, or

Corporate Takeover Bids, Methods of Payment, and Bidding Firms' Stock Returns

Abstract: This study explores the role of the method of payment in explaining common stock returns of bidding firms at the announcement of takeover bids. The results reveal significant differences in the abnormal returns between common stock exchanges and cash offers. The results are independent of the type of takeover bid, i.e., merger or tender offer, and of bid outcomes. These findings, supported by analysis of nonconvertible bonds, are attributed mainly to signalling effects and imply that the inconclusive evidence of earlier studies on takeovers may be due to their failure to control for the method of payment. RECENT STUDIES ON CORPORATE takeovers provide inconclusive results on the valuation effects of acquisitions on the common stock of bidding firms.1 Substantial differences are reported between the studies that analyze acquisitions initiated as tender offers and those that confine their samples to merger proposals. The existence of mixed empirical findings for the bidding firms makes it difficult to interpret existing evidence and to draw conclusions about the managers' acquisition motivations. Nevertheless, the reason for the substantial difference between empirical findings on mergers and tender offers still remains an unresolved issue. It is observed, however, that mergers are usually common stock exchange offers whereas tender offers are usually cash offers. Given that different methods of financing a project have different signalling implications (Myers and Majluf [39]), the differential stock returns of bidders in mergers and tender offers may be due to the method of acquisition financing.