Appraisal Rights and Corporate Disclosure during Mergers and Acquisitions

Abstract

Target shareholders have the right to ask for a higher merger price if good news emerges after a merger agreement. This “appraisal right” varies with state law and was substantially strengthened in Delaware in 2007. I examine how target managers respond to changes in this right. If target managers represent target shareholders, the managers would be more likely to release good news, but I find they are more likely to withhold good news when appraisal rights are higher. This suggests agency problems and collusion on the part of target managers, and thus my paper adds to the larger literature that considers agency problems on the part of managers.

Keywords: Appraisal Laws, Shareholder Property Rights, Mergers and Acquisitions, Corporate Disclosure

JEL Classification: G32, K22, G34, M41