Target information asymmetry and acquisition price

Document Type

Journal Article

Publication Date

2016

Keywords

Information asymmetry, Price discount, Bid premium, Acquirer return

DOI

10.1111/jbfa.12202

Abstract

This study investigates the effects of target information asymmetry in a takeover transaction. We find that a target with more information asymmetry receives a larger bid premium from the acquirer. We examine the response of the acquirer's investors to the bid to clarify whether the larger bid premium is an overpayment by the acquirer. We observe that the acquirer's investors respond more positively to the acquisition of an opaque target, indicating that the market recognizes the acquirer's valuation of the opaque target and agrees with the offer price. Our results indicate that corporate takeovers help to resolve asymmetric information in the capital market.

Source Publication

Journal of Business Finance & Accounting

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