AffiliationUniversity of Arizona, Eller College of Management
MetadataShow full item record
PublisherCambridge University Press (CUP)
CitationChen, Z., Mahmudi, H., Virani, A., & Zhao, X. (2021). Why are bidder termination provisions included in takeovers? Journal of Financial and Quantitative Analysis.
Rights© The Author(s), 2021. Published by Cambridge University Press on behalf of Michael G. Foster School of Business, University of Washington.
Collection InformationThis item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at firstname.lastname@example.org.
AbstractWe present a rationale for bidder termination provisions that considers their effect on bidders' and targets' joint takeover gains. The provision's inclusion can create value by enabling termination when the target becomes less valuable to the bidder than on its own, but creates a trade-off because termination may also occur when the target is more valuable to the bidder than on its own. This trade-off explains why the provision is included in only some deals, and explains variation in termination fees. Inclusion of the provision is associated with larger combined announcement returns, provided that the termination fee is priced appropriately.
VersionFinal accepted manuscript