Do Appraisal Challenges Benefit Target Shareholders through Narrowing Arbitrage Spread? A Reply

Abstract

The emergence of appraisal arbitrage as an investment strategy has focused attention on the role of judicial appraisal in mergers and acquisitions deals. Our study-Boone, Broughman, and Macias (2019)-contributes to this discussion' by exploring the impact of appraisal on the ex ante terms of acquisition. Our main findings are that "target shareholders receive higher abnormal returns as the strength of the appraisal remedy increases" (p. 281) and that threat of appraisal does not appear to limit merger activity. To explore alternative explanations, we also report data on mean postannouncement arbitrage spreads. In particular, figure in Boone, Broughman, and Macias (2019) shows lower postannouncement arbitrage spreads for target firms that received an appraisal challenge as compared with target firms that did not receive an appraisal challenge.