Idiosyncratic volatility and mergers and acquisitions in emerging markets PengCheng Zhu a,1 , Vijay Jog b,2 , Isaac Otchere b, ⁎ a School of Business Administration, University of San Diego, 5998 Alcalá Park, San Diego, CA 92110, USA b Sprott School of Business, Carleton University, 1125 Colonel By Dr, Ottawa, Ontario K1S 5B6, Canada article info abstract Article history: Received 20 January 2014 Received in revised form 23 March 2014 Accepted 3 April 2014 Available online 13 April 2014 Given the recent findings in the literature that idiosyncratic vola- tility reflects stock price informativeness, we analyze the impact of idiosyncratic volatility on many acquisition parameters. We find that idiosyncratic volatility is positively related to acquisition premium; the relationship is more significant in deals that occurred in information- poor economies where acquirers have difficulty gathering information about the targets. These deals typically involve bidders from emerging markets and those that have less experience in the target country. Idiosyncratic volatility is also positively related to acquisition comple- tion rate, the likelihood of the bidder acquiring majority control, but is negatively related to takeover probability. © 2014 Elsevier B.V. All rights reserved. JEL classification: D82 G15 G34 Keywords: Idiosyncratic volatility Mergers and acquisitions Emerging markets 1. Introduction The role of idiosyncratic volatility has received considerable attention in the literature in terms of its effect on market efficiency and stock price in both developed and emerging markets with conflicting conclusions especially in relation to emerging markets. For example, beginning with Morck et al. (2000), studies have concluded that higher idiosyncratic volatility is a reflection of better stock price informativeness and efficiency of the market in incorporating private information into the stock prices (for example, Chen et al., 2007; Durnev et al., 2003, 2004; Ferreira and Laux, 2007; Jin and Myers, 2006; Wurgler, 2000). These researchers claim that through informed trading, private information (i.e., firm specific information) is impounded into stock prices thereby ensuring that the stock price better reflects the fundamental value of the Emerging Markets Review 19 (2014) 18–48 ⁎ Corresponding author. Tel.: +1 613 520 2600x2731; fax: +1 613 520 2247. E-mail addresses: pzhu@sandiego.edu (P. Zhu), vjog@ccs.carleton.ca (V. Jog), isaac.otchere@carleton.ca (I. Otchere). 1 Tel.: +1 619 260 2382. 2 Tel.: +1 613 520 2600x2377. http://dx.doi.org/10.1016/j.ememar.2014.04.001 1566-0141/© 2014 Elsevier B.V. All rights reserved. Contents lists available at ScienceDirect Emerging Markets Review journal homepage: www.elsevier.com/locate/emr