Auctions in Corporate Finance ∗

This paper reviews the applications of auction theory to corporate finance. It starts with a review of the main auction theory frameworks and the major results. It then goes on to discuss how auction theory can be applied, in the context of the market for corporate control, not only to “inform” a company’s board or regulators, but also to understand some of the observed empirical evidence on target and bidder returns. It then considers the role of preemptive bidding, stock versus cash offers, the effect of toeholds on bidding behavior, the effect of bidder heterogeneity and discrimination in auctions, merger waves, bankruptcy auctions, share repurchases and “Dutch” auctions, IPO auctions, and the role of debt in auctions. It concludes with a brief discussion of the econometrics of auction data.