Abstract
We analyze the effects of learning about target firms on acquisition pricing. Newly public firms should be more opaque than established firms with long track records. An acquirer with superior information about a newly public firm can negotiate a favorable takeover price because lessinformed potential acquirers have a bidding handicap. Consistent with the effects of learning, acquirer announcement returns decrease and takeover premiums increase with the length of time since the targets’ initial public offerings. Our results provide new insights into the determinants of acquirer announcement returns and the effects of learning on acquisition pricing. Moreover, the target’s listing status alone does not seem to fully explain why acquirer announcement returns in acquisitions of public targets are significantly lower than in acquisitions of private targets.
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