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INFORMATION ASYMMETRY AND WEALTH EFFECT OF CANADIAN CORPORATE ACQUISITIONS |
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| Authors: | A L Calvet J Lefoll |
| Institution: | University of Ottawa, Ottawa, Ontario, Canada. We would like to thank the Department of Finance of the Government of Canada, the Government of Québec, the Faculty of Administration of the University of Ottawa, and the Universitédu Québec àHull for their support. The comments of M. C. Jensen, H. DeAngelo, C. W. Smith, J. B. Warner, B. Husson, D. Pène, P. Ryan, and three anonymous referees are appreciated. All responsibility for errors remains with the authors. |
| Abstract: | This study reports evidence on the wealth effects of bidders and targets involved in Canadian corporate acquisitions. It then examines whether wealth changes at the announcement time are consistent with the hypothesis that the payment method is a surrogate signal for bidder management's beliefs regarding the value of its firm. The findings support the value-maximizing hypothesis and indicate a stronger performance for both bidders and targets in cash takeovers than in acquisitions involving an exchange of securities—in accordance with the existence of asymmetric information and the tax effect resulting from the payment method. |
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