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Information Asymmetries and Investment Banking in Mergers & Acquisitions


Christine Häcker

This book examines information asymmetries in mergers and acquisitions, specifically focusing on the role of the investment banker. When capital markets are imperfect, the investment banker may add value as an intermediary by reducing transaction costs and mitigating information asymmetries. Here, a theoretical model is developed, which shows that the investment banker is able to reduce the degree of hidden information between seller and buyer. The model indicates that the investment banker will recommend a specific buyer, taking the nature of the buyer, expected synergy benefits, and the acquisition probability into account. Based on that recommendation, the selling company can obtain maximum value by selling to the highest bidder.
Contents: Mergers & Acquisition Principles – Transaction Types – The Mergers & Acquisitions Process – Intermediaries – Capital Market Imperfections – Intermediaries and Perfect Capital Markets – Intermediaries and Imperfect Capital Markets – Information Asymmetry between Buyer and Seller – Reporting Regulations – Information Categories – Buyer Types – Confidentiality Agreements – Information Disclosure Dilemma for the Seller – Information Disclosure Model – Offering Price per Buyer Type – Disclosure of Private Information – Investment Banker’s Recommendation to the Seller.