Are Fairness Opinions Fair? The Case of Mergers and Acquisitions

58 Pages Posted: 30 Jun 2006 Last revised: 11 Sep 2009

Darren J. Kisgen

Boston College - Carroll School of Management

Jun Qian

Shanghai Advanced Institute of Finance(SAIF), Shanghai Jiao Tong University; University of Pennsylvania - Wharton Financial Institutions Center; China Academy of Financial Research (CAFR)

Weihong Song

University of Cincinnati - Department of Finance

Date Written: March 18, 2008

Abstract

From 1994 to 2003, 80% of targets and 37% of acquirers obtain a third-party assessment of the fairness of a merger or acquisition. These fairness opinions do not affect deal outcomes when used by targets, but they affect deal outcomes when used by acquirers. The deal premium is lower in transactions if the acquirer obtains a fairness opinion, and further reduced if multiple advisors provide that opinion. However, the acquirer's announcement period return is 2.3% lower if the acquirer has a fairness opinion, especially if the acquirer pays a high premium, indicating that investors are skeptical of these transactions.

Keywords: Fairness opinion, merger, conflict of interest, deal premium, announcement return.

JEL Classification: G34, G24, J33

Suggested Citation

Kisgen, Darren J. and Qian, Jun and Song, Weihong, Are Fairness Opinions Fair? The Case of Mergers and Acquisitions (March 18, 2008). AFA 2007 Chicago Meetings Paper; EFA 2006 Zurich Meetings; Journal of Financial Economics (JFE), Vol. 91, No. 2, 2009. Available at SSRN: https://ssrn.com/abstract=1031256

Darren J. Kisgen

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Jun Qian (Contact Author)

Shanghai Advanced Institute of Finance(SAIF), Shanghai Jiao Tong University ( email )

211 West Huaihai Road
Shanghai, 200030
China
86-21-62934520 (Phone)
86-21-62934572 (Fax)

HOME PAGE: http://www.saif.sjtu.edu.cn/en/professors/2101

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
Philadelphia, PA 19104
United States

HOME PAGE: http://fic.wharton.upenn.edu/fic/

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Weihong Song

University of Cincinnati - Department of Finance ( email )

College of Business
PO Box 210195
Cincinnati, OH 45221
United States
513-556-7041 (Phone)
513-556-0979 (Fax)

HOME PAGE: http://business.uc.edu/weihong-song

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