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Information asymmetries how not to 'buy a lemon' in negotiating mergers and acquisitions

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  • Dierickx, Ingemar
  • Koza, Mitchell

Abstract

Companies involved in merger and acquisition deals are up against a fundamental problem when they negotiate. Information is asymmetrical, i.e. unequally divided between buyer and seller. There are two, parallel outcomes. One, the buyer is likely to make an adverse selection. Two, the seller cannot reveal all his information and true value -- he has a 'credible signalling problem'. Ingemar Dierickx and Mitchell Koza make some helpful suggestions to avoid or reduce the information imbalance when negotiations take place on combining assets. They include hints about who negotiates and over what period, degree of previous familiarity between the companies, and the use of joint ventures as a preferable alternative. Regrettably, there is no absolute 'cure'.

Suggested Citation

  • Dierickx, Ingemar & Koza, Mitchell, 1991. "Information asymmetries how not to 'buy a lemon' in negotiating mergers and acquisitions," European Management Journal, Elsevier, vol. 9(3), pages 229-234, September.
    • Handle: RePEc:eee:eurman:v:9:y:1991:i:3:p:229-234
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    Cited by:

    1. Christine Pochet, 2000. "Audit d'acquisition et expertise indépendante dans les opérations de fusions-acquisitions:le cas Aérospatiale-Matra," Revue Finance Contrôle Stratégie, revues.org, vol. 3(3), pages 181-209, September.
    2. Harbir Singh & Maurizio Zollo, 1998. "The Impact of Knowledge Codification, Experience Trajectories and Integration Strategies on the Performance of Corporate Acquisitions," Center for Financial Institutions Working Papers 98-24, Wharton School Center for Financial Institutions, University of Pennsylvania.
    3. Ilya R. P. Cuypers & Youtha Cuypers & Xavier Martin, 2017. "When the target may know better: Effects of experience and information asymmetries on value from mergers and acquisitions," Strategic Management Journal, Wiley Blackwell, vol. 38(3), pages 609-625, March.

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