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Information Asymmetry in International Acquisitions: The Role of Information Institutions
Jeff Jiewei Yu, Massachusetts Institute Of Technology
Jessie Qi Zhou, Southern Methodist University
ABSTRACT. Economic theories (Akerlof, 1970; North, 1990) posit that information institutions affect the efficiency with which capital is allocated to investment opportunities. This study focuses on one key set of information institutions, the rules governing corporate disclosure, and documents that the capital market reacts negatively to international acquisitions where target nation’s information institutions are of low quality. This negative reaction is more significant for inexperienced acquirers and firms making unrelated acquisitions. In addition, when information institutions are poor, firms choosing partial acquisitions perform better than those choosing full acquisitions. Overall, this study contributes to the literature by bridging macro institutional contexts with micro firm- and transaction-level factors, thus providing a more comprehensive analysis for the information problems involved in international acquisitions.
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