Determinants of bidder competition in corporate takeovers

The importance of bidder competition in the corporate takeover process has long been recognized in theoretical models. This paper provides empirical tests of those models. The results indicate that resistance by target management to an initial bid encourages multiple bidders. Competing bidders are less likely to enter in cases where the target is large, but more likely to arise when the initial bidder is highly levered. High initial bids (preemptive bids) are found to discourage entry by additional firms. Surprisingly, targets with high levels of free cash flow tend not to be the recipients of multiple bids.