Public Peer Firm Information in Mergers and Acquisitions of Privately Held Targets

56 Pages Posted: 18 Apr 2022 Last revised: 23 Dec 2023

See all articles by Ciao-Wei Chen

Ciao-Wei Chen

University of Illinois at Urbana-Champaign - Department of Accountancy

Daniel W. Collins

University of Iowa - Department of Accounting

David S. Koo

George Mason University

Richard Mergenthaler

Penn State University

Date Written: December 20, 2023

Abstract

We examine whether acquirers make more profitable acquisitions of privately held targets when they have better information about the target’s public peer firms. We also explore how acquirers use such public peer information in the M&A process. We find that richer public peer information is associated with more profitable private target acquisitions. Furthermore, we find public peer information is more useful when acquirers have ex ante greater uncertainty about the private target. Finally, we find evidence that acquirers obtain more information about the target’s public peer firms, are more likely to select a peer firm as a comparable company, have lower valuation multiples, and are less likely to include earnouts in the M&A contract, when public peer firm information is more informative. This evidence is consistent with acquirers using public peer information to mitigate adverse selection and moral hazard.

Keywords: peer firms; information environment; mergers and acquisitions; private firms; price informativeness

JEL Classification: G14; G34; M41

Suggested Citation

Chen, Ciao-Wei and Collins, Daniel W. and Koo, David S. and Mergenthaler, Richard Dean, Public Peer Firm Information in Mergers and Acquisitions of Privately Held Targets (December 20, 2023). Available at SSRN: https://ssrn.com/abstract=4075177 or http://dx.doi.org/10.2139/ssrn.4075177

Ciao-Wei Chen (Contact Author)

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Daniel W. Collins

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0912 (Phone)
319-335-1956 (Fax)

David S. Koo

George Mason University ( email )

School of Business
Enterprise Hall 110
Fairfax, VA 22030
United States

Richard Dean Mergenthaler

Penn State University ( email )

University Park, PA 16802-3306
United States

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