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Book Chapter: Termination Payment Provisions in Acquisitions: An Information Economics Perspective

TitleTermination Payment Provisions in Acquisitions: An Information Economics Perspective
Authors
Issue Date2014
PublisherEmerald Group Publishing Limited
Citation
Termination Payment Provisions in Acquisitions: An Information Economics Perspective. In Villalonga, B (Ed.), Finance and Strategy, p. 69-102. Emerald Group Publishing Limited, 2014 How to Cite?
AbstractIn M&A markets, acquirers face a hold-up problem of losing the value of investments they make in due diligence, negotiations, and post-acquisition planning if targets would pursue the options of waiting for better offers or selling to an alternative bidder. This chapter extends information economics to the literature on M&A contracting by arguing that such contracting problems are more likely to occur for targets with better outside options created by the information available on their resources and prospects. We also argue that acquirers address these contracting problems by using termination payment provisions to safeguard their investments. While previous research in corporate strategy and finance has suggested that certain factors can facilitate an acquisition by reducing a focal acquirer’s risk of adverse selection (e.g., signals, certifications), we note that these same factors can make the target attractive to other potential bidders and can exacerbate the risk of hold-up, thereby leading acquirers to use termination payment provisions as contractual safeguards.
Persistent Identifierhttp://hdl.handle.net/10722/201998
ISBN
Series/Report no.Advances in Strategic Management, vol. 31

 

DC FieldValueLanguage
dc.contributor.authorWu, Cen_US
dc.contributor.authorReuer, Jen_US
dc.date.accessioned2014-08-21T07:55:59Z-
dc.date.available2014-08-21T07:55:59Z-
dc.date.issued2014en_US
dc.identifier.citationTermination Payment Provisions in Acquisitions: An Information Economics Perspective. In Villalonga, B (Ed.), Finance and Strategy, p. 69-102. Emerald Group Publishing Limited, 2014en_US
dc.identifier.isbn9781783504930en_US
dc.identifier.urihttp://hdl.handle.net/10722/201998-
dc.description.abstractIn M&A markets, acquirers face a hold-up problem of losing the value of investments they make in due diligence, negotiations, and post-acquisition planning if targets would pursue the options of waiting for better offers or selling to an alternative bidder. This chapter extends information economics to the literature on M&A contracting by arguing that such contracting problems are more likely to occur for targets with better outside options created by the information available on their resources and prospects. We also argue that acquirers address these contracting problems by using termination payment provisions to safeguard their investments. While previous research in corporate strategy and finance has suggested that certain factors can facilitate an acquisition by reducing a focal acquirer’s risk of adverse selection (e.g., signals, certifications), we note that these same factors can make the target attractive to other potential bidders and can exacerbate the risk of hold-up, thereby leading acquirers to use termination payment provisions as contractual safeguards.en_US
dc.languageengen_US
dc.publisherEmerald Group Publishing Limiteden_US
dc.relation.ispartofFinance and Strategyen_US
dc.relation.ispartofseriesAdvances in Strategic Management, vol. 31-
dc.titleTermination Payment Provisions in Acquisitions: An Information Economics Perspectiveen_US
dc.typeBook_Chapteren_US
dc.identifier.emailWu, C: chweiwu@hku.hken_US
dc.identifier.authorityWu, C=rp01631en_US
dc.identifier.doi10.1108/S0742-332220140000031002-
dc.identifier.hkuros233483en_US
dc.identifier.spage69en_US
dc.identifier.epage102en_US

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