Testing for Asymmetric Information Effects in Failed Mergers

In this paper we report the results of an empirical investigation based on a sample of 105 failed merger bids that occurred in the UK in the 1980's. We find that target firms report large, significant, positive gains after the bid while bidder firms report large, significant, negative gains. We also find that these returns are affected by the extent to which the bidder and target firms are related. In related bids target returns are significantly lower and bidder returns are significantly more negative than in unrelated bids. We conclude that these results are consistent with an information based explanation of merger activity.