Do Appraisal Challenges Benefit Target Shareholders Through Narrowing Arbitrage Spread?

14 Pages Posted: 3 Oct 2019

See all articles by Gaurav Jetley

Gaurav Jetley

Analysis Group, Inc.

Yuxiao Huang

Analysis Group, Inc. - New York City Office

Date Written: September 20, 2019

Abstract

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

Jetley, Gaurav and Huang, Yuxiao, Do Appraisal Challenges Benefit Target Shareholders Through Narrowing Arbitrage Spread? (September 20, 2019). Available at SSRN: https://ssrn.com/abstract=3458969 or http://dx.doi.org/10.2139/ssrn.3458969

Gaurav Jetley

Analysis Group, Inc. ( email )

Boston, MA
United States

Yuxiao Huang (Contact Author)

Analysis Group, Inc. - New York City Office ( email )

151 West 42 Street
23rd Floor
New York, NY 10036
United States

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