Information Asymmetry, Litigation Risk, Uncertainty and the Demand for Fairness Opinions : Evidence from U.S. Mergers and Acquisitions, 1980-2002

In mergers and acquisitions quot;fairness opinionsquot; are written evaluations of the financial terms of offers for target firms. We use simultaneous equations logit models to identify factors influencing the probabilities of firms obtaining third-party fairness opinions. We find that probabilities are increased by asymmetric information and litigation risk as well as by a variety of uncertainty measures including market values, whether the deal is quot;friendlyquot; or the terms are quot;cash,quot; and use of other financial advisory services. We find, in particular, that probabilities have been increased by the Delaware Court's Van Gorkom decision but not by the SEC's Regulation FD