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Mergers and Target Transparency

In: Corporate Governance in the US and Global Settings

Author

Listed:
  • Iftekhar Hasan
  • Jarl G. Kallberg
  • Crocker H. Liu
  • Xian Sun

Abstract

We empirically investigate the hypothesis that the less transparent (more difficult to value) the target’s assets are the more likely it is that the acquiring firm can obtain higher short- and long-term returns. We analyze a sample of 1,538 friendly acquisitions partitioned in two separate dimensions: acquisitions of public versus private firms, and acquisitions of a firm’s assets versus acquisitions of a firm’s assets and its management. Using a sample of (nondiversifying) real estate transactions with a public REIT as the acquirer, we find that acquisitions of public firms have insignificant short-term abnormal returns. Acquisitions of private targets have positive and significant short-term abnormal returns. The acquirer’s abnormal returns are higher in both cases when the transactions involve acquisition of the target firm’s management. We find parallel results when analyzing the acquirer’sQover the merger year and the three following years. Our conclusions are robust to the type of financing (cash, stock, or a combination) used in the acquisition.

Suggested Citation

  • Iftekhar Hasan & Jarl G. Kallberg & Crocker H. Liu & Xian Sun, 2014. "Mergers and Target Transparency," Advances in Financial Economics, in: Corporate Governance in the US and Global Settings, volume 17, pages 193-227, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:afeczz:s1569-373220140000017001
    DOI: 10.1108/S1569-373220140000017001
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    More about this item

    Keywords

    Mergers and acquisitions; information asymmetry; value of firms; G14; G32; G34; D82;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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