Economic Consequences of Announcing Strategic Alternatives
66 Pages Posted: 4 May 2021 Last revised: 13 Jul 2022
Date Written: July 11, 2022
This study documents the costs and benefits to a company of publicly announcing that it is seeking its potential sale or merger (“strategic alternatives”). On the one hand, I find that the announcement leads to increased market attention and a more probable and robust M&A sales process – the benefits of improved transparency. On the other hand, my results suggest that the announcement may alienate stakeholders and further disrupt business operations – the costs of credible disclosure. Finally, I estimate the announcement’s costs and benefits impounded into stock prices as two countervailing effects, where their net effect depends on whether the company is eventually acquired. Overall, these results are important because they provide: (i) evidence of a unique disclosure affecting a firm through various channels; (ii) estimates of the costs’ and benefits’ impact on long-run stock returns; and (iii) key considerations to investors and company decision makers who face the consequences of this disclosure decision.
Keywords: corporate disclosure; strategic alternatives; mergers and acquisitions; disclosure costs and benefits; information dissemination; shareholder value
JEL Classification: D82, D84, G14, G34, M41
Suggested Citation: Suggested Citation