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Are fairness opinions fair? The case of mergers and acquisitions

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  • Kisgen, Darren J.
  • QJ Qian, Jun
  • Song, Weihong

Abstract

Over the period 1994-2003, 80% of targets and 37% of acquirers obtain a third-party assessment of the fairness of a merger or acquisition. These fairness opinions do not affect deal outcomes when used by targets, but they affect deal outcomes when used by acquirers. The deal premium is lower in transactions if the acquirer obtains a fairness opinion, and is further reduced if multiple advisors provide an opinion. However, the acquirer's announcement-period return is 2.3% lower if the acquirer has a fairness opinion, especially if the acquirer pays a high premium, indicating that investors are skeptical of these transactions.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:jfinec:v:91:y:2009:i:2:p:179-207
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    Cited by:

    1. 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.
    2. Anup Agrawal & Tommy Cooper & Qin Lian & Qiming Wang, 2013. "Common Advisers in Mergers and Acquisitions: Determinants and Consequences," Journal of Law and Economics, University of Chicago Press, vol. 56(3), pages 691-740.
    3. De Jong, Abe & Ongena, Steven & van der Poel, Marieke, 2010. "The international diversification of banks and the value of their cross-border M&A advice," CEPR Discussion Papers 7735, C.E.P.R. Discussion Papers.
    4. repec:eee:corfin:v:48:y:2018:i:c:p:187-216 is not listed on IDEAS
    5. Ouyang, Wenjing, 2015. "The effect of M&A advisors’ opinions on acquirer shareholder voting," The Quarterly Review of Economics and Finance, Elsevier, vol. 57(C), pages 175-190.
    6. Mehmet Ekmekci & Nenad Kos, 2014. "Value of Information and Fairness Opinions in Takeovers," Working Papers 510, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    7. Liu, Tingting & Wu, Juan (Julie), 2014. "Merger arbitrage short selling and price pressure," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 36-54.
    8. Demirtaş, Gül, 2017. "Board involvement in the M&A negotiation process," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 27-43.
    9. Maurice Levi & Kai Li & Feng Zhang, 2015. "Are Women More Likely to Seek Advice than Men? Evidence from the Boardroom," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 8(1), pages 1-23, February.
    10. Greene, Daniel, 2016. "The wealth of private firm owners following reverse mergers," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 56-75.
    11. Wei Jiang & Tao Li & Danqing Mei & Randall Thomas, 2016. "Appraisal: Shareholder Remedy or Litigation Arbitrage?," Journal of Law and Economics, University of Chicago Press, vol. 59(3), pages 697-729.
    12. Song, Weihong & Wei, Jie (Diana) & Zhou, Lei, 2013. "The value of “boutique” financial advisors in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 20(C), pages 94-114.
    13. Hilscher, Jens & Şişli-Ciamarra, Elif, 2013. "Conflicts of interest on corporate boards: The effect of creditor-directors on acquisitions," Journal of Corporate Finance, Elsevier, vol. 19(C), pages 140-158.
    14. repec:eee:corfin:v:44:y:2017:i:c:p:388-404 is not listed on IDEAS
    15. repec:eee:jfinec:v:126:y:2017:i:3:p:614-634 is not listed on IDEAS
    16. 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.
    17. Rui Shen & Yi Tang & Guoli Chen, 2014. "When the role fits: How firm status differentials affect corporate takeovers," Strategic Management Journal, Wiley Blackwell, vol. 35(13), pages 2012-2030, December.
    18. Cai, Ye & Sevilir, Merih, 2012. "Board connections and M&A transactions," Journal of Financial Economics, Elsevier, vol. 103(2), pages 327-349.
    19. Matthew D. Cain & David J. Denis, 2013. "Information Production by Investment Banks: Evidence from Fairness Opinions," Journal of Law and Economics, University of Chicago Press, vol. 56(1), pages 245-280.
    20. Simonyan, Karen, 2014. "What determines takeover premia: An empirical analysis," Journal of Economics and Business, Elsevier, vol. 75(C), pages 93-125.
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