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

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  • Paul Borochin
  • Chinmoy Ghosh
  • Di Huang

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.

Suggested Citation

  • 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.
    • Handle: RePEc:bla:eufman:v:25:y:2019:i:1:p:38-79
    DOI: 10.1111/eufm.12199
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    Cited by:

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    2. Yousry Ahmed & Tamer Elshandidy, 2021. "Effect of leverage deviation on choices and outcomes of public versus non‐public acquisitions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3436-3459, July.
    3. Hassan, M. Kabir & Alhenawi, Yasser, 2022. "Can information asymmetry explain both the post-merger value and the announcement discount in M&As?," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 222-243.
    4. Song, Sangcheol & Zeng, Yuping & Zhou, Bing, 2021. "Information asymmetry, cross-listing, and post-M&A performance," Journal of Business Research, Elsevier, vol. 122(C), pages 447-457.
    5. J. Amar & M. Arouri & G. Dufrénot & C. Lecourt, 2024. "Determinants of partial versus full cross-border acquisitions for Sovereign Wealth Funds," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 160(2), pages 509-539, May.
    6. Chen, Han-Sheng & Lin, Ying-Chou & Lin, Yu-Chen, 2024. "Reexamining information asymmetry related to corporate spin-offs," The Quarterly Review of Economics and Finance, Elsevier, vol. 94(C), pages 190-205.

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