The Effect of Information Asymmetry on the Method of Payment and Post-M&A Involuntary Delisting

Asia-Pacific Journal of Business. 11(3):1-20. https://doi.org/10.32599/apjb.11.3.202009.1

32 Pages Posted: 22 Feb 2021

See all articles by Ephraim Kwashie Thompson

Ephraim Kwashie Thompson

Seoul National University of Science and Technology

Changki Kim

Korea University

Date Written: September 30, 2020

Abstract

Purpose - This paper shows an unexplored area related to involuntary delisting. Specifically, this research investigates the effect of target firm information asymmetry on the likelihood that the acquirer or newly merged firm will be forcibly delisted post-merger.

Design/methodology/approach - The research uses a sample gathered on local US mergers and acquisitions from the Thomson Reuters Securities Data Company (SDC) Platinum Mergers and Acquisitions database. It applies the logistic regression with industry and year effects and corrects the error term using clustering at the industry level. The research also matches the forced delisted firms to control firms based on industry, acquisition completion year, and firm size and then employs a matched sample analysis.

Findings - Findings show that M&As between firms where the target firm is opaque and burdened with high information asymmetry issues are likely to be paid for using majority stock and that M&As involving such opaque targets also have a higher likelihood of getting delisted post-merger.

Research implications or Originality - Our results are relevant given the very nature of M&As which involve two players: the acquirer and target who both may have different incentives. Acquirers especially have the tendency to suffer losses and even get delisted if they over-pay for or get merged to a poor target which conceals its poor performance evidenced by higher accruals quality.

Keywords: Information Asymmetry, Involuntary Delisting, Method of Payment

JEL Classification: G14, G34

Suggested Citation

Thompson, Ephraim Kwashie and Kim, Changki, The Effect of Information Asymmetry on the Method of Payment and Post-M&A Involuntary Delisting (September 30, 2020). Asia-Pacific Journal of Business. 11(3):1-20. https://doi.org/10.32599/apjb.11.3.202009.1, Available at SSRN: https://ssrn.com/abstract=3701055 or http://dx.doi.org/10.2139/ssrn.3701055

Ephraim Kwashie Thompson

Seoul National University of Science and Technology ( email )

172 Gongreuing 2-dong, Nowon-gu
Seoul, 139-746
Korea, Republic of (South Korea)

Changki Kim (Contact Author)

Korea University

1 Anam-dong 5 ka
Seoul, 136-701
Korea, Republic of (South Korea)

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