The informational consequences of good and bad mergers

Samer Adra, Leonidas G Barbopoulos*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We study the information production dynamics in financial markets in response to Mergers and Acquisitions (M&As) announcements. We find that acquirers with low levels of pre-announcement stock price informativeness experience a substantial increase in their corresponding post-announcement stock price informativeness in response topositive Cumulative Abnormal Returns (CAR). We show that this increase is due to the enhanced prospect of deal completion. By contrast, high levels of acquirer pre-announcement stock price informativeness limit traders’ incentives to search for, and acquire, new information. We also find that similar dynamics apply to the changes in acquirers’ analyst coverage. Emphasizing the important role of information acquisition costs in influencing informed trading, a positive acquirer CAR increases the acquiring firm’s post-announcement stock price informativeness in M&As involving public rather than private and subsidiary targets. Overall, we show that M&As have important informational consequences beyond their immediate effects on stock prices.
Original languageEnglish
Article number102310
Number of pages19
JournalJournal of Corporate Finance
Volume78
Early online date14 Oct 2022
DOIs
Publication statusPublished - Feb 2023

Keywords

  • stock price informativeness
  • endogenous information production
  • mergers and acquisitions
  • analyst coverage

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