TY - JOUR
T1 - The informational consequences of good and bad mergers
AU - Adra, Samer
AU - Barbopoulos, Leonidas G
N1 - Funding Information:
We are grateful for helpful comments and suggestions from Morten Bennedsen (the editor), Anthony Saunders, Jeffrey Wurgler, and participants at finance seminar series of the University of Liverpool, University of Sheffield, University of Cardiff, Pontifical Catholic University of Parana in Brazil, Sao Paolo, and the Financial Management Association 2020 annual (virtual) meeting. For a thorough proof reading of the paper, we thank Micaela Maftei. Any remaining errors are ours
Publisher Copyright:
© 2022 The Author(s)
PY - 2023/2
Y1 - 2023/2
N2 - 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.
AB - 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.
KW - stock price informativeness
KW - endogenous information production
KW - mergers and acquisitions
KW - analyst coverage
U2 - 10.1016/j.jcorpfin.2022.102310
DO - 10.1016/j.jcorpfin.2022.102310
M3 - Article
VL - 78
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
SN - 0929-1199
M1 - 102310
ER -