Comprehensive Study of the Stock Market’s Reaction to Fairness Opinions

Abstract

The authors comprehensively study the stock market’s reaction to buy-side fairness opinions (FO) and investigate investment strategies associated with such opinions. They find that the stock portfolio of acquiring firms that purchase an FO for their merger deals has negative risk-adjusted abnormal returns and performs poorly relative to acquiring firms that undertake similar deals but do not use an FO. These results imply that for investment professionals, a more appropriate investment strategy is mostly to short the opinioned stocks.