Investor Disagreement and Merger Outcomes

53 Pages Posted: 28 Mar 2017 Last revised: 16 Jul 2017

Sangwon Lee

University of Houston, Department of Finance, Students

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

Lee, Sangwon, Investor Disagreement and Merger Outcomes (July 14, 2017). Available at SSRN: or

Sangwon Lee (Contact Author)

University of Houston, Department of Finance, Students ( email )

Houston, TX
United States

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