Target Information Asymmetry and Acquisition Price

Journal of Business Finance and Accounting, Forthcoming

63 Pages Posted: 8 Aug 2016

See all articles by Peter Shu-tong Cheng

Peter Shu-tong Cheng

Hong Kong Polytechnic University

Jack Li

Shenzhen Audencia Business School

Wilson H.S. Tong

Hong Kong Polytechnic University

Date Written: August 7, 2016

Abstract

This study investigates the effects of target information asymmetry in a takeover transaction. We find that a target with more information asymmetry receives a larger bid premium from the acquirer. We examine the response of the acquirer’s investors to the bid to clarify whether the larger bid premium is an overpayment by the acquirer. We observe that the acquirer’s investors respond more positively to the acquisition of an opaque target, indicating that the market recognizes the acquirer’s valuation of the opaque target and agrees with the offer price. Our results indicate that corporate takeovers help to resolve asymmetric information in the capital market.

Keywords: information asymmetry, price discount, bid premium, acquirer return

JEL Classification: D82, G14, G34

Suggested Citation

Cheng, Peter Shu-tong and Li, Jack and Tong, Wilson H.S., Target Information Asymmetry and Acquisition Price (August 7, 2016). Journal of Business Finance and Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2819825

Peter Shu-tong Cheng

Hong Kong Polytechnic University ( email )

Hung Hom, Kowloon
Hong Kong

Jack Li (Contact Author)

Shenzhen Audencia Business School ( email )

Shenzhen Audencia Business School
Shenzhen University
Shenzhen
China

Wilson H.S. Tong

Hong Kong Polytechnic University ( email )

Hong Kong

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