| This study examines investment bankers' valuation analyses disclosed in fairness opinions in negotiated mergers from 1998 to 2005 and reports the following findings. First, acquirer advisors tend to issue optimistically biased valuations of target firms: on average, acquirer-side investment banks value targets significantly above offer prices. This bias is unrelated to the contingency structure of advisory fees, advisor rankings, or pre-established relationships with acquirers or targets. Second, target-side investment banks produce fairness opinions that correctly value targets on average. Third, target-sought fairness opinions contain valuable information previously unavailable to the market: target valuations in excess of offer prices are positively correlated with acquirers' abnormal returns around the proxy statement dates in which fairness opinions are publicly revealed. Taken as a whole, the findings help to explain the long-run survival of fairness opinions and their usefulness in valuing mergers and acquisitions. |
