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A More Critical Use of Fairness Opinions as a Practical Approach to the Behavioral Economics of Mergers and Acquisitions

Transactions: The Tennessee Journal of Business Law, Vol. 12, p. 81, 2011

University of Tennessee Legal Studies Research Paper No. 149

19 Pages Posted: 10 May 2011 Last revised: 2 Jun 2011

Joan MacLeod Heminway

University of Tennessee College of Law

Date Written: May 31, 2011

Abstract

This paper responds to Professor Donald C. Langevoort's essay entitled "The Behavioral Economics of Mergers and Acquisitions" (12 Transactions: Tenn. J. Bus. L. 65 (2011)). Together with Professor Langevoort's essay and another responsive work written from the standpoint of behavioral psychology – Eric Sundstrom's "Tall Steps, Slippery Slopes & Learning Curves in the Behavioral Economics of Mergers & Acquisitions" (12 Transactions: Tenn. J. Bus. L. 65 (2011)) – this paper preliminarily explores solutions to behavioral issues in the context of mergers and acquisitions.

Specifically, this paper contends that changes in the contents, construction, use, and assessment of fairness opinions may better enable fairness opinions to counteract the potential and actual biases of corporate management and shareholders in M&A decision-making. The paper begins by briefly reviewing the nature (attributes, benefits and detriments), regulation, and utilization of fairness opinions in the M&A transactional process, including the ways in which fairness opinions manifest, support, and attempt to counteract behavioral norms. Next, the paper suggests best practices in the construction and use of fairness opinions that take into account our knowledge of behavioral psychology as it relates to M&A transactions. The net effect of these best practices is to transform what may be unconscious behavioral norms into conscious biases that, once exposed, can be confronted and, as desired, mitigated.

Keywords: fairness opinions, mergers, acquisitions, behavioral economics, bias, systematic error

JEL Classification: D21, D23, G34, K22, L14, L20, L21, M20, M21

Suggested Citation

Heminway, Joan MacLeod, A More Critical Use of Fairness Opinions as a Practical Approach to the Behavioral Economics of Mergers and Acquisitions (May 31, 2011). Transactions: The Tennessee Journal of Business Law, Vol. 12, p. 81, 2011 ; University of Tennessee Legal Studies Research Paper No. 149. Available at SSRN: https://ssrn.com/abstract=1833406 or http://dx.doi.org/10.2139/ssrn.1833406

Joan MacLeod Heminway (Contact Author)

University of Tennessee College of Law ( email )

1505 West Cumberland Avenue
Knoxville, TN 37996
United States
865-974-3813 (Phone)
865-974-0681 (Fax)

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