Investor Disagreement and Outcomes of Mergers and Acquisitions

50 Pages Posted: 28 Mar 2017 Last revised: 17 Nov 2017

Date Written: November 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 trading volume, bid-ask spread, and stock return volatility 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. Consistent with the divergence of opinion theory, 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

Lee, Sangwon, Investor Disagreement and Outcomes of Mergers and Acquisitions (November 2017). Available at SSRN: or

Sangwon Lee (Contact Author)

Cornerstone Research

599 Lexington Ave
New York, NY 10022
United States

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