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

42 Pages Posted: 30 Jan 2019

See all articles by Paul Borochin

Paul Borochin

University of Miami - Department of Finance

Chinmoy Ghosh

University of Connecticut - Department of Finance

Di Huang

Alma College

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Date Written: January 2019

Abstract

We examine the relation between information asymmetry and firm value around a merger and acquisition (M&A). Owing to the due diligence and intense scrutiny 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 a target's information asymmetry and the relationship is concentrated in same‐state or same‐industry mergers. Our difference‐in‐difference analysis shows that the wealth effects become weaker when the overall information environment improves. Furthermore, we document that information asymmetry is an important factor in target selection and the likelihood of diversifying deals, deal size, and deal closure time.

Keywords: acquisitions, firm valuation, information asymmetry

Suggested Citation

Borochin, Paul and Ghosh, Chinmoy and Huang, Di, Target Information Asymmetry and Takeover Strategy: Insights from a New Perspective (January 2019). European Financial Management, Vol. 25, Issue 1, pp. 38-79, 2019. Available at SSRN: https://ssrn.com/abstract=3326054 or http://dx.doi.org/10.1111/eufm.12199

Paul Borochin (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
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

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