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Target information asymmetry and takeover strategy: Insights from a new perspective

Paul Borochin, Chinmoy Ghosh and Di Huang

European Financial Management, 2019, vol. 25, issue 1, 38-79

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.

Date: 2019
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