I develop and implement tests for the usefulness and the bias of fairness opinion valuations, and find tight evidence for both. They impound information about fundamental mispricing in targets, and prospective deal synergies, which could make them useful to directors in exercising their duties. They also exhibit predictable bias: providers toggle their discount-rate assumptions ex post to rationalize negotiated deal prices. However, this bias has been constrained by judicial scrutiny in recent years. These findings suggest that third-party appraisal could have a useful role in M&A governance, and suggest avenues for reform.
Paper can be downloaded here.