Noise Trading and Takeovers
Volume: Volume 22, No. 1
Issue: Spring 1991
Pages: pp. 54-71
Authors: Albert S. Kyle and Jean-Luc Vila
Title: Noise Trading and Takeovers
Abstract: A model of takeovers is investigated in which "noise trading" provides camouflage that makes it possible for a large corporate outsider to purchase enough shares at favorable prices so that takeovers become profitable. Although the model accommodates the possibility of dilution (Grossman and Hart, 1980) and a large incumbent shareholder (Shleifer and Vishny, 1986), neither dilution nor a large incumbent shareholder is necessary for costly takeovers to be profitable. Noise trading tends to encourage costly takeovers that otherwise would not occur and to discourage beneficial takeovers that otherwise would occur.
JEL Classification
Mergers; Acquisitions; Restructuring; Voting; Proxy Contests (G340)
Market Structure: Industrial Organization and Corporate Strategy
(6110) Business Finance (5210) Business Administration (5131)