Abnormal returns and asymmetric information surrounding strategic and financial acquisitions

Abstract

Using takeover bids from the United States, we investigate the importance of information asymmetry in self‐selection when evaluating the abnormal returns of financial versus strategic takeover targets during a period of possible informed trade. Sample selection bias due to differences in financial versus strategic takeover bid information environments is controlled for using Heckman's model. Results show that takeover announcements are not randomised, indicative of timed announcements, and further that private equity firms exhibit lower price impact post‐announcement. We conclude that the long‐term financial motive of private equity takeovers, coupled with higher private information pre‐announcement, leads to lower abnormal returns post‐announcement.