Do Firms Strategically Internalize Disclosure Spillovers? Evidence from Cash-Financed M&As

77 Pages Posted: 16 Apr 2018 Last revised: 29 Jul 2019

See all articles by Jinhwan Kim

Jinhwan Kim

Stanford Graduate School of Business

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT)

Benjamin Yost

Boston College - Carroll School of Management

Date Written: July 25, 2019

Abstract

We investigate whether managers internalize the spillover effects of their disclosure on the stock price of related firms and strategically alter their disclosure decisions when doing so is beneficial. Using data on firm-initiated disclosures during all-cash acquisitions, we find that acquirers strategically generate news that they expect will depress the target’s stock price. The strategy leads to lower target returns during the negotiation period when the takeover price is being determined and results in a lower target premium. Our results are consistent with expected spillovers influencing the timing and content of firms’ disclosures.

Keywords: corporate disclosure, externalities, acquisitions

JEL Classification: D83, D62, G34

Suggested Citation

Kim, Jinhwan and Verdi, Rodrigo S. and Yost, Benjamin, Do Firms Strategically Internalize Disclosure Spillovers? Evidence from Cash-Financed M&As (July 25, 2019). Available at SSRN: https://ssrn.com/abstract=3158520 or http://dx.doi.org/10.2139/ssrn.3158520

Jinhwan Kim

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Rodrigo S. Verdi (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

Sloan School of Management
100 Main Street E62-666
Cambridge, MA 02142
United States
(617) 253 2956 (Phone)

Benjamin Yost

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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