Information uncertainty and target valuation in mergers and acquisitions

Lin Li, Hin Sang Tong

Research output: Journal article publicationJournal articleAcademic researchpeer-review

3 Citations (Scopus)


We examine how a target's information uncertainty level affects an acquirer's valuation of the target and the acquirer's gain realized from the transaction. Based on a simple perpetual discounted cash flow model, we argue that the valuation will be lower for a target with higher information uncertainty and acquiring a target with high information uncertainty can potentially create value for an acquirer's shareholders. The empirical findings lend support to our arguments. Specifically, we observe that a target's valuation multiple obtained from an acquirer is negatively correlated with the target's information uncertainty level. An acquirer's announcement return is negatively correlated with the valuation multiple given to the target but positively correlated with the target's information uncertainty level. The results are robust against various measurements of valuation multiples and information uncertainty.
Original languageEnglish
Pages (from-to)84-107
Number of pages24
JournalJournal of Empirical Finance
Publication statusPublished - 1 Jan 2018


  • Acquirer abnormal return
  • Bid premium
  • Information uncertainty
  • Valuation multiple

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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