Fairness Opinions and Capital Markets: Evidence from Germany, Switzerland and Austria

This paper by Sebasian Lobe and Nils-Christian Schenk provides the first empirical evidence of fairness opinions in Europe. Legal requirements concerning the use of fairness opinions in mergers and acquisitions are significantly different in Germany, Switzerland and Austria. We examine the determinants of fairness opinions for target firms in these various regulatory settings, and moreover, investigate the impact of such opinions on the abnormal returns of target firms. While in Germany and Austria market participants do not deem fairness opinions important, they do create value for shareholders in Switzerland. Because conflicts of interest between the target’s board and bidder are a main determinant of fairness opinions in Switzerland, we conclude that when the target’s management faces such conflict, external expert advice replaces the board’s opinion on the offer.