#05-40
Are Fairness Opinions Fair? The Case of Mergers and Acquisitions
Darren J. Kisgen, Jun "QJ" Qian and Weihong Song
Abstract: With manually compiled data on a large sample of deals announced between 1994 and 2003, we
empirically examine the role and effects of fairness opinions in mergers and acquisitions. approximately 95%
of deals have at least one fairness opinion on the target side, while 70% of deals have one or more opinion on
the acquirer side. Transactions where two or more advisors conduct a fairness opinion for the acquirer have
higher long-term stock performance, indicating this multi-opinion structure is favorable to acquirer shareholders.
On the other hand, acquirers that have a top-tier advisor perform the fairness opinion pay lower premiums for
the target, but have lower long-term stock performance. The inclusion of acquirer opinions is more likely when
deal size is large, when tender offers are not used, and when the transaction is friendly. The existence of target
fairness opinions, in particular, those performed by two or more advisors or by a reputable advisor, increases the
likelihood for deal completion. Our results support the hypotheses that fairness opinions are used by
management and boards to hedge legal risk but do not increase the overall quality of transactions.
Keywords: Fairness opinion, advisory, merger, tender offer, investment bank, abnormal returns.
JEL classifications : G34, G24, J33.
