Does Distance Matter in Mergers and Acquisitions?

Abstract

Using a sample of mergers and acquisitions from 1985 to 2014, we examine the impact of proximity between target and acquirer as a measure of information asymmetry. We find geographic distance has a significant impact on acquisitions premiums and time to completion, conditional on the size of the target firm. Small targets receive lower premiums and have a faster time to completion the closer they are to their acquirer. Conversely, large targets have a slower time to deal completion the closer their proximity. We conclude geographic distance has a substantial impact on acquisitions.

Target information asymmetry and takeover strategy: Insights from a new perspective

“…Further, we find a significantly negative relation between target information asymmetry and relative deal size, which suggests that high information asymmetry targets are small firms. Finally, we find that higher target information asymmetry is associated with a shorter deal closure time, similar to the findings by Bick, Crook, Lynch, and Walkup ().…”

“…In column (4) in Table , we report the results of an OLS model with deal completion time as the dependent variable. Similar to Bick et al () and contrary to hypothesis 4b, we find a significantly negative relation between target information asymmetry and deal closure time, which indicates that a deal closes more quickly when there is high target information asymmetry. In unreported results, we find a significantly positive relation between deal completion time and the interaction variable between target information asymmetry and small target.…”

“…Finally, Ragozzino and Reuer () and Bick et al () suggest that location proximity provides the merging parties with information advantages. Ragozzino and Reuer () present evidence that proximate acquirers are less likely to experience adverse selection owing to their information advantages, whereas distant acquirers are more likely to experience adverse selection given the information asymmetries they face, so signals can reduce their relative adverse selection risk.…”

“…We measure the time it takes to close a deal as the time between the announcement date and the effective date when the merger is consummated . Bick et al () find that, in general, deal closure time decreases in the distance between acquirer and target. However, consistent with the information asymmetry hypothesis, for small target firms, the deal completion time is longer.…”

Getting it right or getting it cursed: Auction prices in a residential real estate bubble

“…Such an attenuation of bid shading is offset, however, by information asymmetries among bidders in an English open‐bid auction setting (Bick, Crook, Lynch, & Walkup, ; Cramton, ; Kagel & Levin, ; Klemperer, ). As indicated in Bick et al () in reference to an English auction setting: ‘In the presence of high cross‐sectional dispersion in information, the winner's curse discourages uninformed traders from bidding, lowering the asset's price.’ They suggest that in English open‐bid outcry auctions the presence of informed bidders either ‘drives up asset prices or lowers them, depending on the magnitude of the information asymmetry surrounding the asset.’ In the context of low information asymmetry, in an ascending bid auction, uninformed bidders are unconcerned with the winner's curse and place high bids, driving up the asset's price. In the context of high information asymmetry, as we argue prevailed in the Dublin auction rooms, the winner's curse discourages uninformed traders from bidding, lowering the asset's price.…”