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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

Fanhai International School of Finance, Fudan University; University of Pennsylvania - Wharton Financial Institutions Center

Weihong Song

Independent

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 Kisgen

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Jun Qian (Contact Author)

Fanhai International School of Finance, Fudan University ( email )

Shanghai
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/

Weihong Song

Independent

No Address Available

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