Why are bidder termination provisions included in takeovers?

Zhiyao CHEN, Hamed MAHMUDI*, Aazam VIRANI, Xiaofei ZHAO

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review

2 Citations (Scopus)


We present a rationale for bidder termination provisions that considers their effect on bidders' and targets' joint takeover gains. The provision's inclusion can create value by enabling termination when the target becomes less valuable to the bidder than on its own, but creates a trade-off because termination may also occur when the target is more valuable to the bidder than on its own. This trade-off explains why the provision is included in only some deals, and explains variation in termination fees. Inclusion of the provision is associated with larger combined announcement returns, provided that the termination fee is priced appropriately.

Original languageEnglish
Pages (from-to)2860-2896
Number of pages37
JournalJournal of Financial and Quantitative Analysis
Issue number7
Early online date10 Aug 2021
Publication statusPublished - Nov 2022
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2021 The Author(s).


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