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Title: Information uncertainty and target valuation in mergers and acquisitions
Authors: Li, L
Tong, WHS 
Keywords: Acquirer abnormal return
Bid premium
Information uncertainty
Valuation multiple
Issue Date: 2018
Publisher: Elsevier B.V.
Source: Journal of empirical finance, 2018, v. 45, p. 84-107 How to cite?
Journal: Journal of empirical finance 
Abstract: We examine how a target's information uncertainty level affects an acquirer's valuation of the target and the acquirer's gain realized from the transaction. Based on a simple perpetual discounted cash flow model, we argue that the valuation will be lower for a target with higher information uncertainty and acquiring a target with high information uncertainty can potentially create value for an acquirer's shareholders. The empirical findings lend support to our arguments. Specifically, we observe that a target's valuation multiple obtained from an acquirer is negatively correlated with the target's information uncertainty level. An acquirer's announcement return is negatively correlated with the valuation multiple given to the target but positively correlated with the target's information uncertainty level. The results are robust against various measurements of valuation multiples and information uncertainty.
ISSN: 0927-5398
DOI: 10.1016/j.jempfin.2017.09.009
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