Target Information Asymmetry and Takeover Strategy: Insights from a New Perspective
59 Pages Posted: 12 Nov 2016
Date Written: November 6, 2016
We examine the relation between information asymmetry and firm value using M&A as the identification strategy. Due to the due diligence and intense scrutiny of the target firm around M&A announcements, acquisitions are significant shocks to a target’s information asymmetry. We find that M&A announcement-period wealth gains are significantly related to target’s information asymmetry, and that opaque firms are more likely to be targets, and less likely to experience deal withdrawals. Furthermore, we find that the party with high information asymmetry is in a weaker position when negotiating the deal. Finally, we document that target information asymmetry influences method of payment, and the likelihood of diversifying deals.
Keywords: Information asymmetry, Acquisitions, Firm valuation
JEL Classification: G14, G34
Suggested Citation: Suggested Citation