53 Pages Posted: 28 Mar 2017 Last revised: 16 Jul 2017
Date Written: July 14, 2017
This paper examines divergence of investors’ opinion about the target firm’s value after a merger announcement (“investor disagreement”). I create three measures of investor disagreement using the target’s stock return volatility, bid-ask spreads, and trading volumes during a two-week window following the deal announcement. I find that investor disagreement is positively (negatively) associated with deal complexity (offer premium). Deals with larger investor disagreement are more likely to be renegotiated, are more likely to feature slower completion time, and are more likely to fail ex post, even after controlling for announcement returns and merger arbitrage spreads. My measures of investor disagreement seem to predict the returns for an investment strategy that purchases the target’s share after announcement. Overall, my results highlight the importance of investor disagreement in predicting merger outcomes.
Keywords: Mergers and Acquisitions; Investor Disagreement; Divergence of Opinion
JEL Classification: G14, G32, G34
Suggested Citation: Suggested Citation