Minority Acquisitions and Information Risk

Abstract

We show that minority acquisitions are more common for targets in countries with worse information environments. The effect is stronger for diversifying acquisitions, deals for high-tech targets, and when the bidder has prior acquisition experience. Minority acquisitions can also be a ‘stepping stone’ to a controlling acquisition, especially in countries with worse information environments. We also show that worse target information environments increase majority deal failure, and the time to complete successful deals, whereas stepping stone deals increase success rates and the time to complete. Our results suggest that bidders use minority acquisitions when they confront informational barriers. The findings are robust to endogeneity and other econometric concerns.

Keywords: mergers, major acquisitions, minority acquisitions, cross-country, cross-border

JEL Classification: G34