Fairness Opinions and the Business Judgment Rule an Empirical Investigation of Target Firms' Use of Fairness Opinions
16 Pages Posted: 4 Apr 2002
This paper examines the effect of the Smith v. Van Gorkom decision on the frequency of use of fairness opinions and the portion of financial advisor revenues that are earned from fairness opinions. There is an initial increase in the use of fairness opinions immediately following the decision. However, that initial increase is not sustained; overall, the average number of target firms utilizing fairness opinions post-Van Gorkom (58%) is essentially that same as the percentage pre-Van Gorkom (57%). Also, the protection from liability Van Gorkom gave to boards and the increased potential liability facing issuers of fairness opinions has not resulted in a significantly greater portion of advisory services industry revenues being earned from fairness opinions. However, the portion of revenues earned from advisory services has increased dramatically.
Keywords: fairness opinions, Van Gorkom, acquisitions, investment banking
JEL Classification: G24,G34, K22, K41
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