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Does asymmetric information affect the premium in mergers and acquisitions?

Author

Listed:
  • Dionne, Georges

    (HEC Montreal, Canada Research Chair in Risk Management)

  • La Haye, Mélissa

    (HEC Montreal, Canada Research Chair in Risk Management)

  • Bergerès, Anne-Sophie

    (HEC Montreal, Canada Research Chair in Risk Management)

Abstract
We test the influence of information asymmetry on the premium paid for an acquisition. We analyze mergers and acquisitions as English auctions. The theory of dynamic auctions with private and common value predicts that more informed bidders may pay a lower price. We test that prediction with a sample of 1,026 acquisitions in the United States between 1990 and 2007. We assume that blockholders of the target’s shares are better informed than other bidders because they possess privileged information on the target. Our empirical results show that blockholders pay a much lower premium than do other buyers.

Suggested Citation

  • Dionne, Georges & La Haye, Mélissa & Bergerès, Anne-Sophie, 2014. "Does asymmetric information affect the premium in mergers and acquisitions?," Working Papers 10-3, HEC Montreal, Canada Research Chair in Risk Management.
    • Handle: RePEc:ris:crcrmw:2010_003
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Dionne, Georges, 2012. "The empirical measure of information problems with emphasis on insurance fraud and dynamic data," Working Papers 12-10, HEC Montreal, Canada Research Chair in Risk Management.
    2. Dionne, Georges & Fenou, Akouété & Mnasri, Mohamed, 2023. "Consolidation of the US property and casualty insurance industry: Is climate risk a causal factor for mergers and acquisitions?," Working Papers 23-1, HEC Montreal, Canada Research Chair in Risk Management.
    3. Rehman, Obaid Ur & Zhou, Zihan & Wu, Kai & Li, Wen, 2024. "From courtrooms to corporations: The effect of bankruptcy court establishment on firm acquisitions," Finance Research Letters, Elsevier, vol. 61(C).
    4. Dionne, Georges & Michaud, Pierre-Carl & Pinquet, Jean, 2013. "A review of recent theoretical and empirical analyses of asymmetric information in road safety and automobile insurance," Research in Transportation Economics, Elsevier, vol. 43(1), pages 85-97.
    5. Mussa Hussaini & Ugo Rigoni & Paolo Perego, 2023. "The strategic choice of payment method in takeovers: The role of environmental, social and governance performance," Business Strategy and the Environment, Wiley Blackwell, vol. 32(1), pages 200-219, January.
    6. Glenn Boyle & Gerald Ward, 2016. "Do Better Informed Investors Always Do Better?," Working Papers in Economics 16/29, University of Canterbury, Department of Economics and Finance.
    7. Paul Borochin & Chinmoy Ghosh & Di Huang, 2019. "Target information asymmetry and takeover strategy: Insights from a new perspective," European Financial Management, European Financial Management Association, vol. 25(1), pages 38-79, January.
    8. Lacerda, José & Pereira, Paulo J. & Rodrigues, Artur, 2021. "Toehold acquisitions as option games," Economics Letters, Elsevier, vol. 209(C).
    9. Glenn Boyle & Gerald Ward, 2018. "Do Better Informed Investors Always Do Better? A Buyback Puzzle," Economic Inquiry, Western Economic Association International, vol. 56(4), pages 2137-2157, October.
    10. Suin Lee & Christos Pantzalis & Jung Chul Park, 2024. "Interstate migration‐based social networks and M&A decisions," The Financial Review, Eastern Finance Association, vol. 59(1), pages 113-153, February.
    11. Mamun, Abdullah & Tannous, George & Zhang, Sicong, 2021. "Do regulatory bank mergers improve operating performance?," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 152-174.
    12. Pierre Picard & Jennifer Wang & Kili Wang, 2019. "Collusion between Retailers and Customers: The Case of Insurance Fraud in Taiwan," Working Papers hal-02045335, HAL.
    13. Jedidi, Helmi & Dionne, Georges, 2024. "Nonparametric testing for information asymmetry in the mortgage servicing market," Working Papers 19-1, HEC Montreal, Canada Research Chair in Risk Management, revised 28 Oct 2019.
    14. Nikhil Ramkrishna Bandodkar & Renu Singh, 2022. "Small and Startup IT Firms, Information Chasms, and the Market for Acquisitions," Businesses, MDPI, vol. 2(3), pages 1-21, September.
    15. Gomes, Mathieu & Marsat, Sylvain, 2018. "Does CSR impact premiums in M&A transactions?," Finance Research Letters, Elsevier, vol. 26(C), pages 71-80.
    16. Dalkır, Elif, 2015. "Shareholder information and partial tender offers," Economics Letters, Elsevier, vol. 136(C), pages 64-66.
    17. Hussaini, Mussa & Hussain, Nazim & Nguyen, Duc Khuong & Rigoni, Ugo, 2021. "Is corporate social responsibility an agency problem? An empirical note from takeovers," Finance Research Letters, Elsevier, vol. 43(C).
    18. Dionne, Georges & Fenou, Akouété & Mnasri, Mohamed, 2024. "Insurers’ M&A in the United States during the 1990-2022 period: Is the Fed monetary policy a causal factor," Working Papers 24-2, HEC Montreal, Canada Research Chair in Risk Management, revised 16 Jul 2024.
    19. Patty Bick & Matthew D. Crook & Andrew A. Lynch & Brian R. Walkup, 2017. "Does Distance Matter In Mergers And Acquisitions?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 40(1), pages 33-54, March.
    20. Pierre Picard & Kili Wang, 2015. "INSURANCE FRAUD THROUGH COLLUSION BETWEEN POLICYHOLDERS AND CAR DEALERS: THEORY AND EMPIRICAL EVIDENCE Pierre PICARD," Working Papers hal-01140590, HAL.

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    More about this item

    Keywords

    Asymmetric information test; blockholder; endogeneity; English auction; merger and acquisition; treatment effect;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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