Exploring the Double-Sided Effect of Information Asymmetry and Uncertainty in Mergers and Acquisitions
Publication typeArticle in academic journal
Publication Begin page873
Publication End page917
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AbstractWe examine the joint effect of bidder and target information asymmetry and uncertainty on the payment consideration and subsequent wealth effects in a large sample of acquisitions with both listed and private targets. In line with a risk-sharing argument, we find that acquisitions of targets characterized by higher uncertainty are more likely to be settled with stock. In contrast, higher target information asymmetry increases the likelihood of a cash payment, consistent with bidders strategically exploiting superior information. Acquirers of more opaque targets obtain a larger fraction of total acquisition gains and avoid sharing these gains with target shareholders by offering cash.
Knowledge Domain/IndustryAccounting & Finance