Information asymmetries how not to 'buy a lemon' in negotiating mergers and acquisitions

Ingemar Dierickx, Mitchell Koza

Research output: Contribution to journalArticlepeer-review

14 Scopus citations

Abstract

Companies involved in merger and acquisition deals are up against a fundamental problem when they negotiate. Information is asymmetrical, i.e. unequally divided between buyer and seller. There are two, parallel outcomes. One, the buyer is likely to make an adverse selection. Two, the seller cannot reveal all his information and true value - he has a 'credible signalling problem'. Ingemar Dierickx and Mitchell Koza make some helpful suggestions to avoid or reduce the information imbalance when negotiations take place on combining assets. They include hints about who negotiates and over what period, degree of previous familiarity between the companies, and the use of joint ventures as a preferable alternative. Regrettably, there is no absolute 'cure'.

Original languageEnglish (US)
Pages (from-to)229-234
Number of pages6
JournalEuropean Management Journal
Volume9
Issue number3
DOIs
StatePublished - Sep 1991
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Strategy and Management

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