Asymmetric Information and Target Returns

Posted: 5 Oct 2010

See all articles by Ettore Croci

Ettore Croci

Catholic University of the Sacred Heart of Milan

Dimitris Petmezas

Durham University Business School

Nickolaos G. Travlos

University of Surrey; ALBA Graduate Business School

Date Written: October 3, 2010

Abstract

This paper examines the relationship between asymmetric information and target returns in M&As. We argue that if managers possess favorable (unfavorable) asymmetric information, they will offer, ceteris paribus, high (low) premia, affecting target returns accordingly. We propose several proxies of asymmetric information. The empirical evidence strongly supports our hypothesis as we find that target returns and premiums are significantly negatively related to asymmetric information regarding synergy gains. Our results are robust after controlling for several target and deal characteristics.

Keywords: Asymmetric Information, Mergers and Acquisitions, Target Announcement Returns, Takeover Premiums

JEL Classification: G11, G14, G34

Suggested Citation

Croci, Ettore and Petmezas, Dimitris and Travlos, Nickolaos G., Asymmetric Information and Target Returns (October 3, 2010). Available at SSRN: https://ssrn.com/abstract=1686775

Ettore Croci

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Dimitris Petmezas

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Nickolaos G. Travlos (Contact Author)

University of Surrey ( email )

Guildford
Guildford, Surrey GU2 5XH
United Kingdom

ALBA Graduate Business School ( email )

Athinas Ave. & 2A Areos Str.
Vouliagmeni 166 71, Athens
Greece

HOME PAGE: http://www.alba.edu.gr

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