Do Appraisal Challenges Benefit Target Shareholders Through Narrowing Arbitrage Spread?
14 Pages Posted: 3 Oct 2019
Date Written: September 20, 2019
There is an on-going debate regarding the extent to which the increased appraisal litigation in Delaware Chancery courts is beneficial from a public policy perspective. Boone et al. (2019) documents that, compared to deals without appraisal challenges, deals subject to appraisal challenges have 6% lower post-announcement arbitrage spread on average. Based on this observed gap in arbitrage spread, the authors claim that appraisal challenges benefit target shareholders through narrowing arbitrage spread. We find that the observed gap in arbitrage spread is driven by outliers and sampling biases. In fact, after controlling for these biases, the gap completely closes. Therefore, there is no evidence that target shareholders share the gains from merger arbitrage through narrowing arbitrage spread.
Keywords: Merger Arbitrage, Judicial Appraisal, Delaware Chancery
JEL Classification: G34, K22
Suggested Citation: Suggested Citation