Does Asymmetric Information Affect the Premium in Mergers and Acquisitions?

Canadian Journal of Economics 48, 3, 819-852, 2015

43 Pages Posted: 13 Mar 2010 Last revised: 17 Feb 2023

See all articles by Georges Dionne

Georges Dionne

HEC Montreal - Department of Finance

Mélissa La Haye

Independent

Anne-Sophie Bergerès

Caisse de dépôt et placement du Québec

Date Written: February 19, 2014

Abstract

TWe test the influence of information asymmetry on the premium paid for an acquisition. We analyze mergers and acquisitions as English auctions. The theory of dynamic auctions with private and common value predicts that more informed bidders may pay a lower price. We test that prediction with a sample of 1,026 acquisitions in the United States between 1990 and 2007. We assume that blockholders of the target’s shares are better informed than other bidders because they possess privileged information on the target. Our empirical results show that blockholders pay a much lower premium than do other buyers.

Keywords: Asymmetric information, merger and acquisition, blockholder, premium, English auction, test for over-identifying restriction (Sargan test), test for endogeneity (Durbin-Wu-Hausman test)

JEL Classification: C33, D81, G34

Suggested Citation

Dionne, Georges and La Haye, Mélissa and Bergeres, Anne-Sophie, Does Asymmetric Information Affect the Premium in Mergers and Acquisitions? (February 19, 2014). Canadian Journal of Economics 48, 3, 819-852, 2015, Available at SSRN: https://ssrn.com/abstract=1568329 or http://dx.doi.org/10.2139/ssrn.1568329

Georges Dionne (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-6596 (Phone)
514-340-5019 (Fax)

HOME PAGE: http://www.hec.ca/gestiondesrisques/

Mélissa La Haye

Independent ( email )

Anne-Sophie Bergeres

Caisse de dépôt et placement du Québec ( email )

Quebec
Canada

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