An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Huajing Chen
Arizona State University- - West

Abstract: Recent regulators and financial press have started investigating possible conflicts of interest involved by investment bankers in providing fairness opinions in M&A. In practice, some firms seek independent fairness opinions from investment bankers who have no other role in current M&A, while other purchase non-independent opinions from the same bankers who arrange the deal and receive contingent fees. In this paper, I examine the economic determinants and consequences of the use of independent fairness opinions by targets and acquirers. I find some support that contracting costs and information asymmetric costs explain the choice of the targets to purchase independent fairness opinions and contracting costs influence the same choices of the acquirers. Moreover, I show that the acquirers’ use of independent fairness opinions improves acquirers’ abnormal announcement returns and reduces marginally earnings management by acquirers prior to M&A. However, no evidence is given for targets.

Back to Session Listing

AAA Home Page