A new study by a team of academics including Dr Sonia Falconieri, Senior Lecturer in Finance at Cass Business School, failed to find evidence that break fees result in a reduction of firms chasing deals.

This paper investigates the impact of competition on the outcomes of takeovers. The researchers use a bargaining model with alternating offers where calling an auction represents an outside option for each bidder at each stage of the game. The model aims then to answer three main questions: who wins the takeover? When? How?

The study shows that the effect of break fees on takeover competition crucially depends on their size. If break fees are kept sufficiently low, they do not negatively impact on takeover competition.

To read the full report, download the document below. What do you think? Share your views with us in the comments box below.