It Takes Two to Tango: Interlockings and Partial Equity Ownership

23 Pages Posted: 2 Aug 2021

See all articles by Maria Rosa Battaggion

Maria Rosa Battaggion

University of Bergamo

Vittoria Cerasi

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS)

Date Written: July 30, 2021

Abstract

We study the relationship between the acquisition of partial equity ownership and interlocking directorates among rival companies. Partial equity ownership between rivals in the product market is convenient, even in the case of passive participation, since, internalizing competition, raises the profits of both companies. The price of the acquisition, however, is affected by the marginal cost of the target company. When this cost is private information, the bidder has to elicit the true value of the equity stake from the target through a proper design of the offer in the context of asymmetric information. One possible alternative is for the bidder to propose an interlocking directorate to observe the private cost: to achieve this goal, the bidder has to convince the target to host one of his executives on the board. We build a novel framework to analyze the choice to interlock together with the acquisition of a minority equity stake and study when the two events are observed at equilibrium. We suggest that interlocking directorates may be ancillary to a minority acquisition when the value of the target is private information.

Keywords: Interlocking Directorates; Partial Equity Ownership; Information; Oligopoly

JEL Classification: D4; G3 ; L2

Suggested Citation

Battaggion, Maria Rosa and Cerasi, Vittoria, It Takes Two to Tango: Interlockings and Partial Equity Ownership (July 30, 2021). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 475, Available at SSRN: https://ssrn.com/abstract=3896482

Maria Rosa Battaggion

University of Bergamo

Via Salvecchio, 19
Bergamo, 24129
Italy

Vittoria Cerasi (Contact Author)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy
+39-02-64485821 (Phone)
+39-02-64485878 (Fax)

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