Does Takeover Activity Affect Stock Price Crash Risk? Evidence from International M&A Laws
51 Pages Posted: 26 Jan 2018 Last revised: 16 Jul 2018
Date Written: June 11, 2018
Using the staggered initiation of mergers and acquisitions (“M&A”) laws across countries as an 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 is 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 the threat of takeover 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