The fairness opinion puzzle: Board incentives, information asymmetry, and bidding strategy

Yasuhiro Ohta, Kenton K. Yee

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)


The proliferation of fairness opinions promulgating "wide as Texas" price ranges is not only a seeming regulatory failure, it is a puzzle: why do 60 percent of target boards solicit seemingly worthless documents not required by law, while 40 percent of their peers do not? This article explains a fairness opinion as "cheap talk" between a board and public shareholders. In the Fairness Opinion Game, a board issues a fairness opinion to communicate with two shareholder generations: existing shareholders voting on the proposed sale of their shares and potential aftermarket buyers who would buy if the present transaction falls through. The game yields two equilibria: one where the board issues no opinions and one where Texas-wide opinions emerge as equilibrium messages. We conclude that three factors determine a fairness opinion's width: the board's private incentives, information asymmetry between the board and shareholders, and transaction costs incurred by aftermarket buyers.

Original languageEnglish
Pages (from-to)229-272
Number of pages44
JournalJournal of Legal Studies
Issue number1
Publication statusPublished - 2008 Jan 1

ASJC Scopus subject areas

  • Law


Dive into the research topics of 'The fairness opinion puzzle: Board incentives, information asymmetry, and bidding strategy'. Together they form a unique fingerprint.

Cite this