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Irrevocable commitments and tender offer outcomes
Author(s) -
Fyrqvist Tomi,
Rantapuska Elias,
Torstila Sami
Publication year - 2021
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12515
Subject(s) - tender offer , certification , database transaction , bargaining power , business , duration (music) , economics , actuarial science , accounting , microeconomics , finance , database , computer science , management , art , corporate governance , literature , shareholder
Irrevocable commitments (ICs) are undertakings by target‐firm blockholders to accept an upcoming takeover bid before its announcement. Using a novel manually collected dataset, we develop three new hypotheses and explore one existing hypothesis to explain the use of ICs: (1) trade‐off between speed and price, (2) trade‐off between completion probability and price, (3) differences in bargaining power, and (4) blockholder certification. Transactions with more than 20% of shares irrevocably committed have a 7%–16% higher probability of tender offer completion and 8–10 days shorter bid duration. A transaction with an average‐sized IC is associated with a 2.9 percentage points lower four‐week bid premium than a transaction with no IC. Overall, the results appear most consistent with the hypothesis on completion probability versus price. The results also offer partial evidence in favor of the certification hypothesis.