Precision of Fairness Opinions: An Empirical Analysis
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Discipline/sAdministración y Dirección de Empresas
Within the large market for mergers and acquisitions, fairness opinions are a de-facto standard in the United States of America to protect management from litigation risks by any of the involved parties. Previous court rulings have highlighted that management cannot rely on internally generated valuation reports to ensure the financial adequacy of a merger. However, fairness opinions created by a well-known financial advisor are able to deliver this protection function. Researchers are debating whether fairness opinions (FOs) can have other functions as well. Legal researchers see the usability of FOs limited to the protection function, whereas the financial community assumes further functions of fairness opinions. These include an increased likelihood to successfully close the deal as well as lower/higher deal premia. With regards to cumulative abnormal returns (CARs) two different researches have found evidence that deals with FOs are accompanied by lower premiums paid by the acq...