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Mergers and Target Transparency

Corporate Governance in the US and Global Settings

ISBN: 978-1-78441-292-0

Publication date: 14 November 2014


We empirically investigate the hypothesis that the less transparent (more difficult to value) the target’s assets are the more likely it is that the acquiring firm can obtain higher short- and long-term returns. We analyze a sample of 1,538 friendly acquisitions partitioned in two separate dimensions: acquisitions of public versus private firms, and acquisitions of a firm’s assets versus acquisitions of a firm’s assets and its management. Using a sample of (nondiversifying) real estate transactions with a public REIT as the acquirer, we find that acquisitions of public firms have insignificant short-term abnormal returns. Acquisitions of private targets have positive and significant short-term abnormal returns. The acquirer’s abnormal returns are higher in both cases when the transactions involve acquisition of the target firm’s management. We find parallel results when analyzing the acquirer’s Q over the merger year and the three following years. Our conclusions are robust to the type of financing (cash, stock, or a combination) used in the acquisition.




We would like to thank our discussant Ron Donohue and participants at the AFA meetings for very helpful comments on an earlier draft of this paper. We are also grateful to David Brown, William Gentry, Atul Gupta, Kose John, Chris Mayer, Robin Panovka, and Paolo Pasquariello for helpful discussions. We would also like to thank the Stern School and the Real Estate Institute of New York University for funding, Erik Kallberg for research assistance, and Sandra Moore for editorial assistance. The usual disclaimer applies.


Hasan, I., Kallberg, J.G., Liu, C.H. and Sun, X. (2014), "Mergers and Target Transparency", Corporate Governance in the US and Global Settings (Advances in Financial Economics, Vol. 17), Emerald Group Publishing Limited, Leeds, pp. 193-227.



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