Litigation Risk and Strategic M&A Valuations

59 Pages Posted: 25 Jun 2021 Last revised: 3 Jan 2024

See all articles by Claudia Imperatore

Claudia Imperatore

Bocconi University - Department of Accounting; Bocconi University

Gabriel Pundrich

University of Florida

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT)

Benjamin Yost

Boston College - Carroll School of Management

Date Written: January 3, 2024


We study the role of litigation risk in M&A valuations. Specifically, we hypothesize that litigation risk leads to strategic valuations in fairness opinions (FOs) obtained in M&A transactions. Employing a regulatory shock to merger litigation risk and focusing on the most common valuation techniques – peer firm comparables and DCF analysis – we find that target-sought FOs exhibit lower valuations when litigation risk is high. The effect is concentrated in deals with greater agency conflicts between target management and outside shareholders. Furthermore, downward-biased valuations reduce appraisal litigation but are also associated with lower premiums. In contrast to prior work suggesting that target-sought FOs are used to negotiate a higher takeover price, our findings imply that they are used, at least in part, to mitigate litigation risk and facilitate successful deal completion. Our findings are relevant to academics, practitioners, and regulators interested in M&A price formation, and highlight the role litigation plays therein.

Keywords: Mergers and acquisitions; Appraisal laws; Fairness opinions; Valuation

JEL Classification: G24, G32, G34, K22, M41

Suggested Citation

Imperatore, Claudia and Imperatore, Claudia and Pundrich, Gabriel and Verdi, Rodrigo S. and Yost, Benjamin, Litigation Risk and Strategic M&A Valuations (January 3, 2024). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: or

Claudia Imperatore

Bocconi University ( email )

Bocconi University - Department of Accounting ( email )

Via Roentgen 1
Milan, 20136

Gabriel Pundrich

University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

Rodrigo S. Verdi (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

Sloan School of Management
100 Main Street E62-666
Cambridge, MA 02142
United States
(617) 253 2956 (Phone)

Benjamin Yost

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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