Mergers and Acquisitions: The Role of Ambiguity
52 Pages Posted: 4 Dec 2019
Date Written: November 18, 2019
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: Suggested Citation