Abstract

Private entrepreneurial firms often lack assets and a proven track record, which makes it difficult for potential acquirers to assess the synergies that they could create through the acquisition and for entrepreneurs to know the true value of their own firms. In addition, this information ambiguity is further compounded by potential information asymmetry, which could result in serious “lemon” problems. Furthermore, entrepreneurs often do not know how to find potential buyers due to the lack of a ready market, which could reduce the firms’ liquidation competiveness. This study develops and tests a theoretical model to analyze how entrepreneurs, investors, and acquirers interact in pricing entrepreneurial firms in media industry acquisitions. By doing so, we attempt to aid our understanding of how information ambiguity, information asymmetry, and liquidity constraints affect the acquisition premium.

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