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The Strathprints institutional repository is a digital archive of University of Strathclyde research outputs.

Strathprints serves world leading Open Access research by the University of Strathclyde, including research by the Strathclyde Institute of Pharmacy and Biomedical Sciences (SIPBS), where research centres such as the Industrial Biotechnology Innovation Centre (IBioIC), the Cancer Research UK Formulation Unit, SeaBioTech and the Centre for Biophotonics are based.

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Information asymmetry and bidders’ gains

Draper, Paul and Paudyal, Krishna (2008) Information asymmetry and bidders’ gains. Journal of Business Finance and Accounting, 35 (3-4). pp. 376-405. ISSN 0306-686X

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Abstract

Undervalued firms with high information asymmetry may announce takeover bids to attract the attention of investors with a view to increasing the share price through revaluation. Announcement period returns to such bidders should include both revaluation and synergy gains although the revaluation gains should be confined to early bids and decline with the number of bids announced within a reasonable period. Our results offer strong support to these predictions. Undervalued firms with high pre-bid information asymmetry gain the most from early bids and the gains decline with the number of bids announced. These findings are robust to methods of payment, relative size of deals, target status, relatedness of businesses, domicile of target, M&A activities and alternative measures of information asymmetry, and confirm that gains from early bids include revaluation as well as synergy gains, especially in the cases of undervalued firms with high information asymmetry.