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Do Mergers and Acquisitions Affect Information Asymmetry in the Banking Sector?

Networks Financial Institute working paper series 2017-WP-01

55 Pages Posted: 24 Aug 2017  

John S. Howe

University of Missouri at Columbia - Department of Finance

Thibaut Morillon

University of Missouri at Columbia

Date Written: August 23, 2017

Abstract

We investigate the consequences of mergers and acquisitions (M&As) for information asymmetry in the banking sector. We test competing hypotheses about the effect of M&As on the information environment. M&As either increase information asymmetry (the opacity hypothesis) or diminishes it (the transparency hypothesis). We find evidence that information asymmetry increases following M&A announcements and decreases following deal completions. These findings are more pronounced for acquisitions involving a private target, and all-cash deals, as well as for mergers as opposed to acquisition of assets. Additionally, we find that the enactment of Dodd-Frank reduced the levels of information asymmetry. The results are important to regulators, policy makers, and investors.

Keywords: Mergers and Acquisitions, Opacity Hypothesis, Transparency Hypothesis, Information Asymmetry

JEL Classification: G34

Suggested Citation

Howe, John S. and Morillon, Thibaut, Do Mergers and Acquisitions Affect Information Asymmetry in the Banking Sector? (August 23, 2017). Networks Financial Institute working paper series 2017-WP-01 . Available at SSRN: https://ssrn.com/abstract=3024984

John S. Howe (Contact Author)

University of Missouri at Columbia - Department of Finance ( email )

224 Middlebush Hall
Columbia, MO 65211
United States
573-882-5357 (Phone)
573-884-6296 (Fax)

Thibaut Morillon

University of Missouri at Columbia ( email )

332 Cornell Hall
Columbia, MO Columbia 65211
United States

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