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Target Information Asymmetry and Takeover Strategy: Insights from a New Perspective

59 Pages Posted: 12 Nov 2016  

Paul Borochin

University of Connecticut - School of Business

Chinmoy Ghosh

University of Connecticut - Department of Finance

Di Huang

Alma College

Date Written: November 6, 2016

Abstract

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

Borochin, Paul and Ghosh, Chinmoy and Huang, Di, Target Information Asymmetry and Takeover Strategy: Insights from a New Perspective (November 6, 2016). Available at SSRN: https://ssrn.com/abstract=2865207 or http://dx.doi.org/10.2139/ssrn.2865207

Paul Borochin (Contact Author)

University of Connecticut - School of Business ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

Chinmoy Ghosh

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-3040 (Phone)
860-486-0349 (Fax)

Di Huang

Alma College ( email )

614 W. Superior Street
Alma, MI 48801
United States

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