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Does Asymmetric Information Affect the Premium in Mergers and Acquisitions?


  • Georges Dionne
  • Mélissa La Haye
  • Anne-Sophie Bergères


Our objective is to test the influence of information asymmetry between potential buyers on the premium paid for an acquisition. We analyze mergers and acquisitions as English auctions with asymmetric information. The theory of dynamic auctions with private values predicts that more informed bidders should pay a lower price for an acquisition. We test that prediction with a sample of 1,026 acquisitions in the United States between 1990 and 2007. We hypothesize that blockholders of the target’s shares are better informed than other bidders because they possess privileged information on the target. Information asymmetry between participants is shown to influence the premium paid. Blockholders pay a much lower conditional premium than do other buyers (around 70% lower). Tests also show that the characteristics of the target, specifically the runup, sales growth and size, affect the premium. The size of the target relative to the buyer, the choice of a public takeover bid and the hostility of the bid are also influential.

Suggested Citation

  • Georges Dionne & Mélissa La Haye & Anne-Sophie Bergères, 2010. "Does Asymmetric Information Affect the Premium in Mergers and Acquisitions?," Cahiers de recherche 1015, CIRPEE.
  • Handle: RePEc:lvl:lacicr:1015

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    Cited by:

    1. Glenn Boyle & Gerald Ward, 2016. "Do Better Informed Investors Always Do Better?," Working Papers in Economics 16/29, University of Canterbury, Department of Economics and Finance.
    2. repec:bla:jfnres:v:40:y:2017:i:1:p:33-54 is not listed on IDEAS
    3. Dionne, Georges & Michaud, Pierre-Carl & Pinquet, Jean, 2013. "A review of recent theoretical and empirical analyses of asymmetric information in road safety and automobile insurance," Research in Transportation Economics, Elsevier, vol. 43(1), pages 85-97.
    5. Glenn Boyle & Gerald Ward, 2018. "Do Better Informed Investors Always Do Better? A Buyback Puzzle," Working Papers in Economics 18/06, University of Canterbury, Department of Economics and Finance.
    6. repec:eee:finlet:v:26:y:2018:i:c:p:71-80 is not listed on IDEAS
    7. Georges Dionne, 2012. "The Empirical Measure of Information Problems with Emphasis on Insurance Fraud and Dynamic Data," Cahiers de recherche 1233, CIRPEE.
    8. repec:bla:ecinqu:v:56:y:2018:i:4:p:2137-2157 is not listed on IDEAS

    More about this item


    Asymmetric information; merger and acquisition; blockholder; premium; English auction; test for over-identifying restriction (Sargan test); test for endogeneity (Durbin-Wu-Hausman test);

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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