Are Fairness Opinions Fair? The Case of Mergers and Acquisitions
Darren J. Kisgen
Boston College - Carroll School of Management
Shanghai Advanced Institute of Finance(SAIF), Shanghai Jiao Tong University; University of Pennsylvania - Wharton Financial Institutions Center; China Academy of Financial Research (CAFR)
University of Cincinnati - Department of Finance
March 18, 2008
AFA 2007 Chicago Meetings Paper
EFA 2006 Zurich Meetings
Journal of Financial Economics (JFE), Vol. 91, No. 2, 2009
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.
Number of Pages in PDF File: 58
Keywords: Fairness opinion, merger, conflict of interest, deal premium, announcement return.
JEL Classification: G34, G24, J33
Date posted: June 30, 2006 ; Last revised: September 11, 2009