In this paper, we test the relationship between information asymmetry and acquisition
premium in the mergers and acquisitions of the emerging market firms. Based on a sample of the
domestic and cross-border acquisitions in twenty emerging countries between 1990 and 2007, we
found a strong positive relationship between the acquisition premium paid to the target firms and
the level of information asymmetry of the target firms. In addition, we found that higher level of
information asymmetry leads to less cash payment and higher propensity of acquiring majority
control (>50%) in the target firms. This evidence supports the theory that acquiring majority
control is important in high asymmetric information environment. Thus, the higher the
information asymmetry the higher is the premium paid by bidding firms in order to obtain
majority control in the target firms. In addition, target firms with high information asymmetry
have more valuable private information resources that are not accessible to the public investors.
Acquiring firms may pay higher premium for such valuable information resources. The
hypothesis is supported by the evidence of both the domestic and the cross-border acquisitions in
the emerging markets.