Mergers and Acquisitions: The Role of Ambiguity

52 Pages Posted: 4 Dec 2019

See all articles by Richard Herron

Richard Herron

Northeastern University

Yehuda (Yud) Izhakian

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Date Written: November 18, 2019

Abstract

We study the role of ambiguity—Knightian uncertainty—in mergers and acquisitions (M&A). Ambiguity that bidders face increases the probability, count, dollar value, and speed of M&A activity. However, ambiguity that targets face has opposite effects. Concerning the method of payment, all-stock deals are less likely when bidders face more ambiguity, and all-cash deals are less likely when targets face more ambiguity. Further, same-industry acquisitions are less likely for bidders that face more ambiguity, and deal premiums are higher for targets that face less ambiguity.

Keywords: Ambiguity, Ambiguity Aversion, Knightian Uncertainty, Mergers, Acquisitions

JEL Classification: D81, D83, G34

Suggested Citation

Herron, Richard and Izhakian, Yehuda (Yud), Mergers and Acquisitions: The Role of Ambiguity (November 18, 2019). Northeastern University School of Law Research Paper No. 3489549. Available at SSRN: https://ssrn.com/abstract=3489549 or http://dx.doi.org/10.2139/ssrn.3489549

Richard Herron (Contact Author)

Northeastern University ( email )

Boston, MA 02115
United States

Yehuda (Yud) Izhakian

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

HOME PAGE: http://people.stern.nyu.edu/yizhakia/

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