Liquidity and information asymmetry considerations in corporate takeovers

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Liquidity and information asymmetry considerations in corporate takeovers. / Adra, Samer; Barbopoulos, Leonidas.

In: European Journal of Finance, 09.11.2018, p. 1-20.

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@article{271557dc1f0f45628e77ab173a234231,
title = "Liquidity and information asymmetry considerations in corporate takeovers",
abstract = "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{\textquoteright} 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{\textquoteright}s choice of the target firm{\textquoteright}s listing status, as well as the M&A method of payment.",
keywords = "stock market liquidity, listed targets, private targets, method of payment, takeover premia, risk-adjusted returns",
author = "Samer Adra and Leonidas Barbopoulos",
year = "2018",
month = nov,
day = "9",
doi = "10.1080/1351847X.2018.1543202",
language = "English",
pages = "1--20",
journal = "European Journal of Finance",
issn = "1351-847X",
publisher = "Taylor & Francis",

}

RIS

TY - JOUR

T1 - Liquidity and information asymmetry considerations in corporate takeovers

AU - Adra, Samer

AU - Barbopoulos, Leonidas

PY - 2018/11/9

Y1 - 2018/11/9

N2 - 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.

AB - 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.

KW - stock market liquidity

KW - listed targets

KW - private targets

KW - method of payment

KW - takeover premia

KW - risk-adjusted returns

U2 - 10.1080/1351847X.2018.1543202

DO - 10.1080/1351847X.2018.1543202

M3 - Article

SP - 1

EP - 20

JO - European Journal of Finance

JF - European Journal of Finance

SN - 1351-847X

ER -