Merger Abnormal Returns and the Use of Independent Fairness Opinions

41 Pages Posted: 9 Nov 2006

Date Written: October 2006


Using hand-collected data on fairness opinions from corporate filings, I show that acquirers that purchase independent fairness opinions outperform acquirers that purchase nonindependent opinions around merger announcements. Moreover, the amount of contingent fees that acquirers pay to investment bankers who provide fairness opinions is negatively associated with the same abnormal returns. Furthermore, acquirers with independent fairness opinions perform better in the stock markets until eighteen months after the announcement. Finally, contingent fees that acquirers pay are negatively associated with long-term operating performance. However, no evidence is found for targets except for long-term operating performance, possibly because both shareholders and investment bankers for targets share the same incentive for a higher price.

Keywords: Mergers and acquisitions; Independent fairness opinions; Announcement returns; Corporate governance

JEL Classification: G34; G14; G38; G24

Suggested Citation

Chen, Lucy Huajing, Merger Abnormal Returns and the Use of Independent Fairness Opinions (October 2006). Available at SSRN: or

Lucy Huajing Chen (Contact Author)

Villanova University ( email )

United States
610-519-6321 (Phone)

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