Topic: Information Asymmetry, Bidding Premium and Abnormal Returns
Presenter：WILSON H.S. TONG，Professor，School of Accounting and Finance，Hong Kong Polytechnic University
Time: December 28, 2007（Friday）3：00—4：30 PM
Venue: Room 513, Jiageng Bld 2
Chair：Zhe Shen, assistant professor in finance, IFAS
Abstract：
While there is a large finance literature on the importance of information asymmetry, relatively few study its effect on the takeover market. We fill the void by studying the impact of information asymmetry on the bid premium, the cumulative abnormal returns of the acquirer and the target around the day of the takeover announcement. Based on 1,612 takeover announcements between 1985 and 2006, we find that information asymmetry associates positively with the bid premium. We argue that given information asymmetry, information about the target is more asymmetric against the market than the bidder who has more incentive and ability in collecting target information. Hence, investors discount the target price more than the bidder does resulting higher bid premium for more opaque target. We also find that information asymmetry associates positively with the announcement returns of the acquirer and the target. Apparently, higher bid premium paid to the more opaque target is not an overpayment by the bidder. We argue that our results generalize some recent studies showing that stock acquisition is optimal if the target is under serious information asymmetry problem.
CV paper