Do Mergers and Acquisitions Affect Information Asymmetry in the Banking Sector?

We investigate the consequences of mergers and acquisitions (M&As) for information asymmetry in the banking sector. We test competing hypotheses about the effect of M&As on the information environment. M&As either increase information asymmetry (the opacity hypothesis) or diminishes it (the transparency hypothesis). We find evidence that information asymmetry increases following M&A announcements and decreases following deal completions. These findings are more pronounced for acquisitions involving a private target, and all-cash deals, as well as for mergers as opposed to acquisition of assets. Additionally, we find that the enactment of Dodd-Frank reduced the levels of information asymmetry. The results are important to regulators, policy makers, and investors