Effect of information asymmetry on merger and acquisition premium: a case study of Kenya

Abstract

The purchase price of an asset is important since a high price may lead to financial distress for the buyer while a lower price might lead to the rejection of the bid. The research tries to examine the effect of information asymmetry on the price paid for a mergers and acquisitions in Kenya. The presence of information asymmetry is tested using proxies. The study finds that the premium for CFC, I&M and Access Kenya of 15.08%,4.58%,47% given that there is significant information asymmetry. Control over the level of information asymmetry is important to avoid over paying for an asset.