Targets’ earnings quality and bidders’ takeover decisions
نویسنده
چکیده
This study examines how takeover decisions are influenced by the quality of information in target firms’ earnings. We find that bidders are more likely to prefer negotiations in deals involving targets with poor earnings quality. Moreover, in such deals, earnings quality and takeover premiums are negatively related, suggesting that bidders obtain valuable private information through negotiations. Furthermore, bidders share information risk with target shareholders by paying with more equity for targets with poor earnings quality. The results are generally stronger for private bidders than for public bidders, suggesting that private and public bidders respond differently to information risks in takeovers.
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