Roles Of Information In Corporate Mergers, Acquisitions And Investments
The goal of this dissertation is to show how information asymmetries among market participants affect the way they operate in the financial markets. The first chapter investigates deal initiation in the context of mergers and acquisitions. We use Securities Exchange Commission (SEC) documents of the merging firms in our sample to discover which side (acquirer or target) initiated the deal. Our analysis indicates that target firms receive substantially lower premiums when they initiate the merger: abnormal returns to target firm stocks around the merger announcement date are 12 percentage points lower in such deals. When premiums are calculated over a longer time period, this difference increases to 27 percentage points. We argue that the information asymmetries between merging firms is the primary reason for this finding. Alternative explanations, such as financial distress and liquidity hypotheses, are considered as well. Our findings also relate to acquirer returns, synergy gains from mergers, characteristics of firms involved in buyer- and seller-initiated deals and the effect of the Sarbanes-Oxley Act on premium differences across initiation groups. The second chapter examines how information asymmetries within the set of outside investors influence the investment and financing decisions of firms. In our model, some investors have access to private level information which is not publicly available to others. We show that this external information asymmetry systematically influences the equilibrium stock price, which in turn affects firm's payoff from equity financing. In particular, firms are better off with equity financing when the information asymmetry among the set of outside investors is low. In the third chapter, we analyze past stock returns of the merging firms, and examine their role in explaining abnormal returns around the announcement of the merger to the public. We provide several hypotheses that link these two return variables, and discuss their relevance in our context.
dissertation or thesis