Target Firm-Specific Information and Acquisition Efficiency

Abstract

This study investigates whether firm-specific information about targets improves acquisition efficiency. We define acquisition efficiency as the total surplus generated by an acquisition and measure it as the difference in the value of the merged firm and the sum of the two firms operating separately. We find a positive association between target firm-specific information and acquisition efficiency that is driven mainly by diversifying acquisitions. Additional evidence suggests that both the likelihood of the withdrawal of an announced acquisition and the likelihood of a future divestiture of a target decrease with target firm-specific information. Taken together, our findings suggest that the availability of this information improves merger and acquisitions efficiency.

Target information asymmetry and takeover strategy: Insights from a new perspective

“…McNichols and Stubben (2015) report that access to better information induces superior valuation of the target and greater gains for the acquirer. Martin and Shalev (2016) corroborate these findings. On the other hand, for acquirers with depressed share values due to high information asymmetry, potential gains are lower because they must offer more shares.…”

“…For example, McNichols and Stubben () report that superior accounting information facilitates a more accurate valuation of the target, enabling the acquirer to bid more effectively and capture a greater portion of the gains, which leads to higher announcement returns. Martin and Shalev () find that target transparency enhances efficiency and acquiring shareholders’ gains. Raman et al () report that when targets’ earnings quality is poor, acquirers prefer to negotiate, which allows them to gather valuable information.…”

“…Recent studies (Bena & Li, 2014;Ben-David, Drake, & Roulstone, 2015;Chemmanur, Paeglis, & Simonyan, 2009;Cheng, Li, & Tong, 2016;Dionne, La Haye, & Bergeres, 2015;Golubov, Petmezas, & Travlos, 2016;Marquardt & Zur, 2014;Martin & Shalev, 2016;McNichols & Stubben, 2015;Moeller, Schlingemann, & Stulz, 2007;Officer, Poulsen, & Stegemoller, 2009) use various proxies for information asymmetry to examine its impact on the deal structure, characteristics, and valuation effect of mergers. Despite extensive research, several issues remain unresolved.…”

Discussion of “Financial Statement Comparability and the Efficiency of Acquisition Decisions”

“…The other three outcome variables -change in ROA, write-down of goodwill, and divestitures-occur after the completed merger. Although their findings are consistent with the maintained hypothesis that accounting comparability is associated with better M&A outcomes, they are also consistent with the acquirer using private information about the target firm over the negotiation stages to better evaluate how well the target will blend with the acquiring firm (Martin and Shalev 2016).…”

The Successful Internationalization of Intesa Sanpaolo Bank in Central and Eastern Europe: Acquisitions, Insidership and the Uppsala Model

“…Central and Eastern Europe represents an attractive market for foreign direct investments (FDI) from other European countries (Valdemarin, 2015) and mergers and acquisitions seems to develop as quick way to enter specific markets such as Czech Republic (Thivant & Machková, 2017). Furthermore, it seems that brownfield investments through (M&A) represent a growing trend (Martin & Shalev, 2017) with the emergence of many serial acquirers (Ismail, 2008) between multinational companies.…”