Events

Professor Philip Bond
Professor of Finance and Business Economics
Chair of the Department of Finance and Business Economics
Edward E. Carlson Distinguished Professor in Business Administration
Michael G. Foster School of Business
University of Washington

We analyze takeover efficiency when socially conscious acquirers and target shareholders respond to externalities. Despite the Grossman-Hart “holdout” problem and free-riding in externality production, takeovers are socially efficient when target shareholders are consequentialist and acquirers are purely profit-driven. More generally, we identify a balanced-preferences condition under which externalities are fully internalized. Both increases and decreases in the strength of externality-preferences disrupt this balance and lead to inefficiency. We apply our framework to pre-takeover trading dynamics, exchange offers, leveraged buyouts, minority shareholder protections, and the strategic use of social responsibility as both a takeover defense and a bidding tactic.