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Does asymmetric information affect the premium in mergers and acquisitions?

Author

Listed:
  • Georges Dionne

    (HEC Montreal, Canada Research Chair in Risk Management)

  • Mélissa La Haye

    (HEC Montreal, Canada Research Chair in Risk Management)

  • Anne-Sophie Bergerès

    (HEC Montreal, Canada Research Chair in Risk Management)

Abstract

We test the influence of information asymmetry on the premium paid for an acquisition. We analyze mergers and acquisitions as English auctions. The theory of dynamic auctions with private and common value predicts that more informed bidders may pay a lower price. We test that prediction with a sample of 1,026 acquisitions in the United States between 1990 and 2007. We assume that blockholders of the target’s shares are better informed than other bidders because they possess privileged information on the target. Our empirical results show that blockholders pay a much lower premium than do other buyers.

Suggested Citation

  • Georges Dionne & Mélissa La Haye & Anne-Sophie Bergerès, 2014. "Does asymmetric information affect the premium in mergers and acquisitions?," Working Papers 10-3, HEC Montreal, Canada Research Chair in Risk Management.
    • Handle: RePEc:ris:crcrmw:2010_003
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    References listed on IDEAS

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    Keywords

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    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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