Preemptive rights can prevent cheap-issuance tunneling by a controller when outside investors know that the offered securities are cheap. But when outsiders cannot tell whether the securities are cheap or overpriced, preemptive rights fail to prevent such tunneling.
Afraid of purchasing overpriced securities, outsiders may rationally refrain from purchasing (even when the securities are in fact cheap), and then suffer cheap-issuance losses. I put forward a mechanism to make preemptive rights more effective: requiring disclosure of a controller’s subscription commitment, before outside investors must finalize their own, so that outsiders can choose to mimic it.
The E.U. Takeover Directive was passed twenty years ago with the main aim of fostering a single European takeover market. However, subsequent economic,...
In a canonical takeover model we let an informed large shareholder choose between making a bid or initiating a sale to another acquirer. Such takeover...