Does Asymmetric Information Affect the Premium in Mergers and Acquisitions?

Georges Dionne (), Mélissa La Haye and Anne-Sophie Bergères

Cahiers de recherche from CIRPEE

Abstract: Our objective is to test the influence of information asymmetry between potential buyers on the premium paid for an acquisition. We analyze mergers and acquisitions as English auctions with asymmetric information. The theory of dynamic auctions with private values predicts that more informed bidders should pay a lower price for an acquisition. We test that prediction with a sample of 1,026 acquisitions in the United States between 1990 and 2007. We hypothesize that blockholders of the target’s shares are better informed than other bidders because they possess privileged information on the target. Information asymmetry between participants is shown to influence the premium paid. Blockholders pay a much lower conditional premium than do other buyers (around 70% lower). Tests also show that the characteristics of the target, specifically the runup, sales growth and size, affect the premium. The size of the target relative to the buyer, the choice of a public takeover bid and the hostility of the bid are also influential.

Keywords: Asymmetric information; merger and acquisition; blockholder; premium; English auction; test for over-identifying restriction (Sargan test); test for endogeneity (Durbin-Wu-Hausman test) (search for similar items in EconPapers)
JEL-codes: C33 D81 G34 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-com, nep-cta and nep-ind
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.cirpee.org/fileadmin/documents/Cahiers_2010/CIRPEE10-15.pdf (application/pdf)

Related works:
Journal Article: Does asymmetric information affect the premium in mergers and acquisitions? (2015)
Journal Article: Does asymmetric information affect the premium in mergers and acquisitions? (2015)
Working Paper: Does asymmetric information affect the premium in mergers and acquisitions? (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:1015

Access Statistics for this paper

More papers in Cahiers de recherche from CIRPEE Contact information at EDIRC.
Bibliographic data for series maintained by Manuel Paradis ().