Mergers and Target Transparency
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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’s Q over 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.
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mergers and acquisitions; information asymmetry; value of firms
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Required Publisher Statement: © Emerald. Final version published as: Hasan, I., Kallberg, J. G., Liu, C. H., & Sun, X. (2014). Mergers and target transparency. In K. Johns, A. K. Makhija, & S. P. Ferris (Eds.), Advances in financial economics: Vol. 17. Corporate governance in the US and global settings (pp. 193-227). doi: 10.1108/S1569-373220140000017001 Reprinted with permission. All rights reserved.