Asymmetric Information And Acquisition Of Closely Held Firms

Abstract

This paper analyzes the problem of asymmetric information in the process of acquisition of closely held firms. It shows that the changes in the acquirer stock price during the takeover negotiation allow the acquire firm to receive additional information about the target. The paper predicts that the asymmetric information problem is less severe when the major shareholder of the target firm is wealthier, the ownership of the target firm is less concentrated, or both.