Exploiting a unique setting of overlapping insiders between acquirers and targets in India, we examine how information asymmetry between the transacting parties influences the returns to acquiring firms' shareholders, as well as the method of payment. Using a novel dataset, we find that cash-financed deals generate greater (no significantly different) value for acquiring firms’ shareholders than stock-financed ones when insiders are non-overlapping (overlapping) between acquiring and target firms. Further, stock-financed deals with overlapping insiders outperform those without them. These results indicate that the adverse selection effect of stock issues in stock-financed acquisitions with asymmetric information between the transacting parties is the key reason behind the underperformance of stock-financed deals. We also find that acquisitions with overlapping insiders on both sides of the deal have a significantly higher incidence of financing with stock than those with non-overlapping insiders. However, the positive effect of overlapping insiders on the propensity of acquisition financing with stock becomes weaker when acquiring and target firms are in the same industry. These results suggest that the effect of a particular channel of information asymmetry reduction on the payment method is greatest in the absence of other channels. Our results are robust to several checks.

利用印度收购方和目标公司之间内部人员重叠的独特环境，我们研究了交易方之间的信息不对称如何影响收购公司股东的回报以及付款方式。使用新颖的数据集，我们发现，当收购公司和目标公司之间的内部人员不重叠（重叠）时，现金融资交易比股票融资交易为收购公司股东产生更大（没有显着差异）的价值。此外，有重叠内部人士的股票融资交易的表现要好于没有内部人士的交易。这些结果表明，交易双方信息不对称的股权融资收购中股票发行的逆向选择效应是股权融资交易表现不佳的关键原因。我们还发现，交易双方内部人员重叠的收购中，股票融资的发生率明显高于内部人不重叠的收购。然而，当收购方与目标公司处于同一行业时，内部人重叠对股票收购融资倾向的正向影响会减弱。这些结果表明，在没有其他渠道的情况下，减少信息不对称的特定渠道对支付方式的影响最大。我们的结果对于多项检查都是稳健的。