Disagreement and the Informativeness of Stock Returns: The Case of Acquisition Announcements

45 Pages Posted: 18 Mar 2009 Last revised: 7 Jun 2012

See all articles by Leonce Bargeron

Leonce Bargeron

University of Kentucky - Gatton College of Business and Economics

Kenneth Lehn

University of Pittsburgh - Finance Group

Sara B. Moeller

University of Pittsburgh - Finance Group

Frederik P. Schlingemann

University of Pittsburgh - Finance Group; Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Date Written: June 20, 2011

Abstract

We examine whether disagreement between managers and investors relates to the informativeness of bidder returns around acquisition announcements. We predict that greater disagreement about the merits of an acquisition creates uncertainty about investors’ revaluation of acquiring firms, making returns less informative. We document an inverse relation between bidder returns and the change in bidders’ implied volatility. This relation is only significant when there is more disagreement. Also, the relation between bidder returns and the likelihood of deal completion is stronger when announcement returns are more informative, suggesting managers “listen to the market” more when the market response is more informative.

Keywords: Disagreement, informativeness, acquisitions, implied volatility, uncertainty, bidder returns

JEL Classification: G3

Suggested Citation

Bargeron, Leonce and Lehn, Kenneth and Moeller, Sara B. and Schlingemann, Frederik Paul, Disagreement and the Informativeness of Stock Returns: The Case of Acquisition Announcements (June 20, 2011). Available at SSRN: https://ssrn.com/abstract=1363796 or http://dx.doi.org/10.2139/ssrn.1363796

Leonce Bargeron

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-4397 (Phone)

Kenneth Lehn (Contact Author)

University of Pittsburgh - Finance Group ( email )

372 Mervis Hall
Pittsburgh, PA 15260
United States
412-648-2034 (Phone)

Sara B. Moeller

University of Pittsburgh - Finance Group ( email )

372 Mervis Hall
Pittsburgh, PA 15260
United States

Frederik Paul Schlingemann

University of Pittsburgh - Finance Group ( email )

368A Mervis Hall
Pittsburgh, PA 15260
United States
(412) 648 1847 (Phone)
(412) 648 1693 (Fax)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

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