Stock repurchase as a takeover defense

We develop a model in which stock repurchases serve as a defenseagainst takeovers by signaling the manager's private informationabout the value of the firm. The manager repurchases sharesto block a takeover only if the cost of doing so is not toohigh. Since the cost is inversely related to the value of thefirm under his management, a repurchase signals that the valueof the stock is high, blocking a takeover. While a repurchaseincreases the expected value of the stock, it also makes tostock riskier. The model also implies that there are too fewtakeovers for efficiency.     

Successful takeovers without exclusion

While most takeover models assume atomistic stock-holders, weanalyze a single-raider model with finitely many stockholders.Because the raider can always make some stockholders pivotal,he can overcome the free-rider problem identified by Grossmanand Hart (1980) and others in atomistics-stockholder modelsand profitably take over even without exclusion. One might expectthat it would be harder for the raider to make stockholdersof more widely held firms pivotal and that exclusion would thusbecome necessary; however, the infinite-stockholder game cannotyield this conclusion. We also consider the limit of the finite-stockholdergame and give conditions under which exclusion is unnecessary.Finally, we show that exclusion leads to the possibility ofinefficient takeovers.