Target Information Asymmetry and Acquisition Price

Peter Cheng, Lin Li, Hin Sang Tong

Research output: Journal article publicationJournal articleAcademic researchpeer-review

17 Citations (Scopus)

Abstract

We find that a target with more information asymmetry receives a larger bid premium from the acquirer. We examine the response of the acquirer's investors to the bid to clarify whether the larger bid premium is an overpayment by the acquirer. We observe that the acquirer's investors respond more positively to the acquisition of an opaque target, indicating that the market recognizes the acquirer's valuation of the opaque target and agrees with the offer price. Our results indicate that corporate takeovers help to resolve asymmetric information in the capital market.
Original languageEnglish
Pages (from-to)976-1016
Number of pages41
JournalJournal of Business Finance and Accounting
Volume43
Issue number7-8
DOIs
Publication statusPublished - 1 Jul 2016
Externally publishedYes

Keywords

  • acquirer return
  • bid premium
  • information asymmetry
  • price discount

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting (miscellaneous)
  • Finance

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