Does Takeover Activity Affect Stock Price Crash Risk? Evidence from International M&A Laws
57 Pages Posted: 26 Jan 2018 Last revised: 28 Aug 2018
Date Written: August 28, 2018
Using the staggered initiation of merger and acquisition (M&A) laws across countries as a plausibly exogenous shock to the threat of takeover, we find significant decreases in stock price crash risk following the passage of M&A laws. This effect is stronger in countries with poorer investor protection and information environments but weaker for firms with greater institutional block ownership, product market competition, and analyst coverage. Further, earnings management, an explicit form of managerial bad news hoarding, decreases in the post-law periods. Our findings suggest that takeover threat disciplines managers by curbing their bad news hoarding, a precursor of crash risk.
Keywords: M&A laws, Takeover, Crash risk, Bad-news hoarding, Earnings management
JEL Classification: G23, G32, G34
Suggested Citation: Suggested Citation