UTILISING WARRANTY AND INDEMNITY INSURANCE TO ADDRESS ASYMMETRIC INFORMATION

Özet

Although effective due diligence has been made in acquisitions, many legal problems arise due to the fact that there are inaccuracies and misrepresentations in the statements made by the seller after the closing due to asymmetric information. The paper mainly analyzes the importance of the spread of declaration and guarantee insurance as a solution to these problems. Merger and acquisition initiatives are gaining more and more intensity at the national and international level. Compensation responsibilities arising from the violation of declarations and warranties, which are frequently encountered in this process, are among the issues that buyers and sellers fear most. In this context, it is thought that the dissemination of declaration and guarantee insurance is one of the most effective ways to neutralize this risk. Declaration and guarantee insurance acts as a bridge between the protection demands of the buyers and the aims of the sellers to provide a clean exit. Especially in the case of mergers and acquisitions, it helps the contracting parties to minimize their risks by indemnifying the financial losses that may arise due to the declarations and warranties presented regarding the relevant share and the target company by the insurer. With the transfer of the indemnity responsibility arising from the declaration and warranty violations of the seller after the closing to the insurance company, the parties have placed the sales process on a more secure basis. While the buyer has access to the assurance of indemnifying the financial losses arising from the violation of the declarations and commitments presented to him about the share subject to the sale and the target company from the insurance company, the seller will have the opportunity to transfer his portfolio risk-free by transferring his post-sale responsibilities to the insurer. For this reason, declaration and guarantee insurance are frequently preferred by strategic investors, especially hedge funds.

Abstract

Although effective due diligence has been made in acquisitions, many legal problems arise due to the fact that there are inaccuracies and misrepresentations in the statements made by the seller after the closing due to asymmetric information. The paper mainly analyzes the importance of the spread of declaration and guarantee insurance as a solution to these problems. Merger and acquisition initiatives are gaining more and more intensity at the national and international level. Compensation responsibilities arising from the violation of declarations and warranties, which are frequently encountered in this process, are among the issues that buyers and sellers fear most. In this context, it is thought that the dissemination of declaration and guarantee insurance is one of the most effective ways to neutralize this risk. Declaration and guarantee insurance acts as a bridge between the protection demands of the buyers and the aims of the sellers to provide a clean exit. Especially in the case of mergers and acquisitions, it helps the contracting parties to minimize their risks by indemnifying the financial losses that may arise due to the declarations and warranties presented regarding the relevant share and the target company by the insurer. With the transfer of the indemnity responsibility arising from the declaration and warranty violations of the seller after the closing to the insurance company, the parties have placed the sales process on a more secure basis. While the buyer has access to the assurance of indemnifying the financial losses arising from the violation of the declarations and commitments presented to him about the share subject to the sale and the target company from the insurance company, the seller will have the opportunity to transfer his portfolio risk-free by transferring his post-sale responsibilities to the insurer. For this reason, declaration and guarantee insurance are frequently preferred by strategic investors, especially hedge funds.

Yazarlar

Meva Meva ÖZTÜRK

Anahtar Kelimeler

Profitability, Liquidity, Internal Capital Generation Rate, Bank size, and Inflation

JEL Codes

K20

Yayın Bilgileri

Cilt 3, Sayı 2, 2023 · Sayfa 1-10

DOI: 10.52898/ijif.2023.6

Dosyalar