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Do Fairness Opinion Valuations Contain Useful Information?

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  • Matthew D. Cain
  • David J. Denis

Abstract

We analyze target firm valuations disclosed in the fairness opinions of negotiated mergers between 1998 and 2005. On average, acquirer advisors exhibit a greater degree of valuation optimism than do target advisors. Top-tier advisors produce more accurate valuations than lower-tier advisors, but valuation accuracy is unrelated to the contingency structure of advisory fees. The stock price reactions to merger announcements and to the public disclosure of fairness opinions are positively related to the difference between target firm valuations contained in the fairness opinion and the merger offer price. We conclude that fairness opinions contain information not previously available to market participants.

Suggested Citation

  • 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.
    • Handle: RePEc:pur:prukra:1244
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    File URL: https://business.purdue.edu/research/Working-papers-series/2010/1244.pdf
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    References listed on IDEAS

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    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. Francesco Bavagnoli & Giangiacomo Buzzoni & Corrado Mandirola & Ernesto Salinelli, 2022. "Exploring market multiples accuracy for professional practices: sales is the value anchor but profitability and location matter too," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(4), pages 1409-1442, December.
    3. Daniel Wangerin, 2019. "M&A Due Diligence, Post‐Acquisition Performance, and Financial Reporting for Business Combinations†," Contemporary Accounting Research, John Wiley & Sons, vol. 36(4), pages 2344-2378, December.

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