Implications of Disclosing Ongoing M&A Negotiations: The Role of Managerial Learning

Abstract

This paper explores the economic impact of disclosing ongoing mergers and acquisitions (M&A) negotiations. We present an informational feedback model in which target firms learn from their stock prices, shaping negotiation outcomes. Our analysis identifies both conditional and unconditional effects of disclosure. The conditional effects illustrate how stock price runups influence deal premia, deal probabilities, and division of synergy, offering explanations for documented empirical findings. The unconditional effects point to conditions under which disclosure could facilitate or jeopardize value-creating deals. We also offer new empirical predictions to test the managerial learning hypothesis and discuss the broader implications for corporate governance.

Keywords: M&A negotiation, premium-runup relation, informational feedback, managerial learning, disclosure, information leakage, real effect

JEL Classification: G14, G34, G38