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The certification hypothesis of fairness opinions for acquiring firms


  • La Mura, Pierfrancesco
  • Rapp, Marc Steffen
  • Schwetzler, Bernhard
  • Wilms, Andreas


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.

Suggested Citation

  • La Mura, Pierfrancesco & Rapp, Marc Steffen & Schwetzler, Bernhard & Wilms, Andreas, 2011. "The certification hypothesis of fairness opinions for acquiring firms," International Review of Law and Economics, Elsevier, vol. 31(4), pages 240-248.
  • Handle: RePEc:eee:irlaec:v:31:y:2011:i:4:p:240-248 DOI: 10.1016/j.irle.2011.07.004

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    References listed on IDEAS

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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, January.
    6. 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.
    7. 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.
    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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    More about this item


    Fairness opinion; Acquisition; Management incentives;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K20 - Law and Economics - - Regulation and Business Law - - - General


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