Publication

Abstract : This paper extends the application of information economics theory to the literature on acquirer returns. We complement previous research on acquirer returns by suggesting that the remedial measures of signaling and information intermediation have a contrasting impact on acquirer abnormal returns. Specifically, we argue that the information conveyed through signaling of target firm affiliation with venture capitalist has a value diminishing effect on acquirer returns whereas the information intermediation mechanism through a common venture capitalist has a value enhancing effect on acquirer returns. Empirical evidence shows that acquisition of VC-backed private targets diminishes acquirer returns compared to non-VC-backed private targets. In contrast, acquisition of VC-backed private targets backed by a common VC enhances acquirer returns and such effects are even greater when acquirers purchase targets based in different industries. Also, we provide evidence that benefits of information intermediation cease to exist in deals involving the indirect VC network suggesting an overpowering effect of familiarity bias.