Derivatives Use, Information Asymmetry, and MNC Post‐Acquisition Performance

J. Barry Lin, Christos Pantzalis and Jung Chul Park

Financial Management, 2009, vol. 38, issue 3, 631-661

Abstract: We utilize a sample of US acquiring firms that engaged in international M&As to document the effects of corporate derivatives use on post‐M&A long‐term performance. We find that derivatives users outperform nonusers. Furthermore, we find that acquirers with derivative policies that are more comprehensive and sophisticated outperform those with less comprehensive and sophisticated policies. They, in turn, outperform acquirers with no existing policies in place. Our results are consistent with the notion that the use of derivatives lowers information asymmetry related agency problems. Furthermore, our evidence indicates that derivatives use is an important corporate activity that has a profound effect on post‐M&A performance.

Date: 2009
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