Premium
Target information asymmetry and takeover strategy: Insights from a new perspective
Author(s) -
Borochin Paul,
Ghosh Chinmoy,
Huang Di
Publication year - 2019
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12199
Subject(s) - information asymmetry , due diligence , scrutiny , asymmetry , perspective (graphical) , mergers and acquisitions , value (mathematics) , business , economics , industrial organization , monetary economics , econometrics , microeconomics , finance , statistics , computer science , political science , mathematics , physics , quantum mechanics , law , artificial intelligence
Abstract We examine the relation between information asymmetry and firm value around a merger and acquisition (M&A). Owing to the due diligence and intense scrutiny around M&A announcements, acquisitions are significant shocks to a target's information asymmetry. We find that M&A announcement‐period wealth gains are significantly related to a target's information asymmetry and the relationship is concentrated in same‐state or same‐industry mergers. Our difference‐in‐difference analysis shows that the wealth effects become weaker when the overall information environment improves. Furthermore, we document that information asymmetry is an important factor in target selection and the likelihood of diversifying deals, deal size, and deal closure time.