49 Pages Posted: 28 Mar 2017 Last revised: 10 Sep 2017
Date Written: September 3, 2017
This paper examines the divergence of investor opinions about target firm values after the announcement of M&A deals ("investor disagreement''). I create three measures of investor disagreement using the target firm's stock return volatility, bid-ask spread, and trading volume during a two-week window following a deal announcement. I find that investor disagreement is positively associated with deal complexity, and negatively with the offer premium. Deals with larger investor disagreement are more likely to be renegotiated, to feature slower completion time, and to fail, even after controlling for announcement returns and merger arbitrage spreads. A trading strategy that invests in target firms with low investor disagreement yields positive abnormal returns. Overall, my results highlight the importance of investor disagreement in predicting M&A outcomes.
Keywords: Mergers and Acquisitions; Investor Disagreement; Divergence of Opinion
JEL Classification: G14, G32, G34
Suggested Citation: Suggested Citation