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Do Appraisal Challenges Benefit Target Shareholders through Narrowing Arbitrage Spread?

There is an ongoing debate regarding the extent to which the increased appraisal litigation in the Delaware Chancery Court is beneficial from a public policy perspective. In a recent issue of the Journal of Law and Economics, Boone, Broughman, and Macias document that, compared with deals without appraisal challenges, deals subject to appraisal challenges have a 6-percentage-point lower postannouncement arbitrage spread on average. On the basis of this observed gap in arbitrage spread, the authors claim that appraisal challenges benefit target shareholders through narrowing arbitrage spread. We find that the observed gap in arbitrage spread is driven by outliers and sampling biases. Controlling for these biases completely closes the observed gap. Therefore, there is no evidence that gains from appraisal arbitrage are shared with target shareholders through narrowing of the arbitrage spread.