The Effect of Hostile Acquisition Threats on the Equity Value and Firm Value

This paper studies the effect of hostile acquisition threats on the manager's effort, equity value, operation value and firm value, under the separation of ownership and control. We analyze the optimal ratio of the acquisition premium that the shareholder will determine. At last, we use numerical methods to compare the manager's effort and firm value under non acquisition threats and acquisition threats, and to reveal the effect of takeover efficiency on the firm value. We find that acquisition threats can enhance the manager's effort, increase the equity value and firm value, but will reduce the return of manager, and reduce the operation value when the takeover efficiency is high.