This study investigates acquisitions of small manufacturing firms and compares private and public targets. We develop the argument that private targets tend to involve higher transaction costs in the presence of adverse selection problems than their public counterparts. Consistent with predictions, the empirical evidence indicates that bidders choose to acquire public rather than private targets when acquiring young firms and when engaging in inter-industry transactions. Acquirers also tend to avoid private targets that have significant intangible assets and have not signaled the value of these resources through other means such as collaborative agreements. The results shed light on the benefits of being public and the decision-making criteria employed by acquiring organizations. Copyright Springer 2005
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