Liquidity and information asymmetry considerations in corporate takeovers

Samer Adra, Leonidas Barbopoulos

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)
259 Downloads (Pure)


We examine how stock market liquidity and information asymmetry considerations influence the wealth effects of Mergers and Acquisitions (M&As). We present a simple model predicting that M&As of listed targets that have relatively illiquid stocks are profitable for acquirers due to (a) the weak bargaining power of the targets’ shareholders, and (b) the limited information asymmetry concerns when evaluating takeover synergies. Our results show that cash-financed M&As of listed targets that have relatively illiquid stocks are associated with an increase in acquirer risk-adjusted returns. These gains are equivalent to those realized from comparable private target M&As. When engaging in stock-financed listed-target M&As, acquirers with liquid stocks enjoy significant gains when the targets have relatively illiquid stocks. This result holds especially when the deal is announced during periods of deterioration in the overall stock market liquidity. Lastly, we find that liquidity considerations affect the acquirer’s choice of the target firm’s listing status, as well as the M&A method of payment.
Original languageEnglish
Pages (from-to)1-20
JournalEuropean Journal of Finance
Early online date9 Nov 2018
Publication statusE-pub ahead of print - 9 Nov 2018


  • stock market liquidity
  • listed targets
  • private targets
  • method of payment
  • takeover premia
  • risk-adjusted returns


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