The Value of Publicly Available Information on Acquired Firms in Corporate Acquisitions

Past research shows that the outcomes of acquisitions of private firms are better than those of public firms. This finding is commonly explained by the price discount due to illiquidity and the higher information risk involved in acquiring private firms. Existing studies do not separate the two components. In this study, the authors do so by analyzing the outcomes of acquisitions of a hybrid group of firms that are privately owned yet subject to the same reporting and disclosure requirements of publicly traded firms. They find that the outcomes of acquisitions of such firms are superior to those of either public or private firms. Further, despite the measures used by acquirers to mitigate the higher information risk involved in acquiring private firms, they do not fully compensate for the added risk. These findings highlight the contribution to acquisition success of the availability of regulated financial reporting and disclosure on acquired firms.