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The certification hypothesis of fairness opinions for acquiring firms

Listed author(s):
  • La Mura, Pierfrancesco
  • Rapp, Marc Steffen
  • Schwetzler, Bernhard
  • Wilms, Andreas
Registered author(s):

    We study the certification role of fairness opinions in corporate transactions in a simple non-cooperative setting with asymmetric information and possibly misaligned managerial incentives, and discuss the effect of different regulatory scenarios. Specifically, we compare three settings: one in which no third-party fairness opinion is available, one in which the management is required to obtain a fairness opinion before any transaction, and one in which the management’s decision to require a fairness opinion is voluntary. We compare shareholder value in each of the three scenarios and discuss implications for the optimal design of regulatory environments for fairness opinions.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0144818811000457
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    Article provided by Elsevier in its journal International Review of Law and Economics.

    Volume (Year): 31 (2011)
    Issue (Month): 4 ()
    Pages: 240-248

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    Handle: RePEc:eee:irlaec:v:31:y:2011:i:4:p:240-248
    DOI: 10.1016/j.irle.2011.07.004
    Contact details of provider: Web page: http://www.elsevier.com/locate/irle

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    1. Makhija, Anil K. & Narayanan, Rajesh P., 2007. "Fairness Opinions in Mergers and Acquisitions," Working Paper Series 2007-11, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    2. Blanchard, Olivier Jean & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 1994. "What do firms do with cash windfalls?," Journal of Financial Economics, Elsevier, vol. 36(3), pages 337-360, December.
    3. Yasuhiro Ohta & Kenton K. Yee, 2008. "The Fairness Opinion Puzzle: Board Incentives, Information Asymmetry, and Bidding Strategy," The Journal of Legal Studies, University of Chicago Press, vol. 37(1), pages 229-272, 01.
    4. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    5. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    6. Kisgen, Darren J. & "QJ" Qian, Jun & Song, Weihong, 2009. "Are fairness opinions fair? The case of mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 91(2), pages 179-207, February.
    7. Matthew D. Cain & David J. Denis, 2010. "Do Fairness Opinion Valuations Contain Useful Information?," Purdue University Economics Working Papers 1244, Purdue University, Department of Economics.
    8. Joseph R.A Ayee, 2005. "Working Paper 82 - Public Sector Management in Africa," Working Paper Series 217, African Development Bank.
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